Most players use DirectShow for playback. DirectShow is a system that uses multiple DirectShow filters as building blocks to construct what is called a DirectShow graph. A file is a root of this graph and the audio and video renderers are the leaves of the graph. During playback data flows from the root to the leaves. Each filter in the graph performs a subtask of the whole process. Typical elements in the graph are a source filter, also called a splitter, and decoders for the audio and video. A source filter is responsible for reading the file format and feeding the data to the other filters downstream in the graph. During graph creation, if DirectShow finds multiple filters that are able to perform the same subtask, then it will typically select the filter that has the highest merit. The merit of a filter is simply a numerical value that indicates the preferability of the filter. Tools exist to alter the merit of a DS filter. Advanced players are often able to manipulate which filters are used in the graph, allowing for example to block or prefer certain filters. If no suitable DirectShow filter can be found to decode a certain audio/video format, then DirectShow is able to fall back to using VFW and ACM codecs (see below) through special wrapper filters.
It is a myth that filters can 'conflict' with each other. If something goes wrong it is simply because some filters in the graph are not performing their subtasks correctly. The filters in this pack are carefully selected to provide you with optimal functionality and a minimal chance of running into problems.
Codec is short for 'compressor-decompressor', a piece of software that is able to decode and encode a certain format. By this definition, a DirectShow filter is not a codec.
Two other systems are VFW (Video For Windows) and ACM (Audio Compression Manager). Components for these system are called codecs, because they are typically able to both encode and decode. These two types of codecs are required by most video editing applications, such as VirtualDub. Traditional video editing applications are not able to use DirectShow. More modern applications are sometimes capable of using DirectShow for decoding, but they usually still require VFW and ACM codecs for encoding.