Your comparing Apples and oranges.
No the iPad screen isn't mirrored at 1080p because it's screen isn't 1080p, but the Apple TV can output the scaled screen at 1080p, but then again airvideo HD isn't mirroring your iPad screen in anycase.
What your software is doing is playing any movie on your PC and upscaling it to 1080p if it requires it, which is more or less exactly what iTunes does when you use your Apple TV in it's usual way
Thanks for replying. I think I'm more confused now though. When did I say that AirVideo HD is mirroring my iPad screen? Doesn't AirPlay just take what is on my iPad screen and output throught AppleTV onto my flatscreen? The movies (mkv) I'm playing are 1920x1080 for the most part, how is AirVideo upscaling it? I have the Apple TV and the Lightning adapter. I just want to know which is best for me? When I'm playing my full 1080p video or close to it with AirVideo, which product will output the best quality? I guess that is my real question b/c I need to return one of them, really no need for both I guess. I dont need Hulu, Netflix, etc. I just want to be able to stream movies in the easiest way possible. I have a PS3 and tried streaming movies from PC using the PS3 Media Server but It stuttered the entire time. Now for some reason this iPad Air method is working, I wish I knew why.
You didn't say airvideo was mirroring the iPad screen, but you did ask for a comparison between mirroring and the method you were using to display video from your PC on your TV, of which there isn't a comparison since what you are doing isn't mirroring, nor would the alternative Apple method of displaying video from your PC be mirroring either. The whole point being that I don't think this is what you are really asking.
If your source video is 1080p then there maybe no upscaling when played to the Apple TV, but there would be if your source was different and it isn't really clear from what the developers say whether you really are getting 1080p when using the app in streaming mode. Add to which conversion on the fly is difficult, if you converted these video's without the requirement to do it in real time, you'd find that conversion would likely take much longer than the length of the movie, so doing so within the length of the movie essentially introduces compromise regardless of how the developer dresses things up.
I'm inclined to think that the ambiguity used on the developers website about exactly what their product does is somewhat intentional. It leaves me thinking that whilst it leaves the impression that you are getting high quality video at 1080p that this may not be so in all cases.
However assuming for the point of comparison, it does what it implies it does then at best it is going to be the same quality that you would get from home sharing which is what you would use if you did things the way Apple intended.
So in terms of quality, it will be no more than equal to home sharing and in my estimation likely lower quality. It's main advantage appears to be that it doesn't require that you convert video in advance, but as discussed above this may compromise quality.