Hiya,
The files are converted using FFmpeg and are not compressed or made smaller, they are resized. The .tsv file contains the same number of frames and audio data as the original and is not smaller or compressed because the microcontroller used in the TinyTV is not powerful enough to be able to decompress these large video files.
The TV can only play .tsv files with the way the software is written.
The 8GB card included in the TV kit is large enough to fit 3-5 full movies (depending on the actual length of the movies), but if you would like more video time than that, you can absolutely get a larger micro SD Card to fit as many videos as you'd like. Keep in mind, the battery in the TV will only play around up to 5 hours of video on a full charge (less time with brighter videos, potentially more time with darker videos).
If you want to use a larger SD Card, just be sure to reformat it to FAT32 before adding .tsv files so that it's readable by the TV program.
I hope that helps! Would love to see how you customize/paint your TV!
Cheers,
RĂ©na