The most popular way that digital movies can be downloaded legally is through digital copy. Digital copy is when a movie that is stored in DVD format on a regular form is also stored in a computer-friendly compressed digital format as well. These digital forms are stored separately from the DVD format, and can only be accessed when a DVD is put into a computer and a special one-time use key is entered. The file is then downloaded to the computer and can be watched from the desktop, and in some situations, even downloaded to portable devices like the iPod.
In addition to downloading digital copies from movies you own, you can also download movies for rent. If you have a Netflix account, movies can be downloaded via the "Instant Queue" and are available to watch on your desktop for a short amount of time as a "rental". Other services that include digital rentals include the PlayStation Network and Xbox Live.
If you want to download a movie, and keep it, there are several options. You can purchase full movies from services like iTunes (which sells movies that are guaranteed to be compatible with the iPod) or services like Amazon.com's Unboxed, which offers instant downloads with varying compatibility. The aforementioned Xbox Live and PlayStation Network services also offer select full movies for download.