Technically It was possible to play .avi files by loading an embedded object for a external player directly in the HTML. Now chrome deprecated that capabitilities and the
There are only a few file video formats which can be played in most browsers. Chrome probably does not want to support non-standard formats and thus pollute the Web with incompatible content.
Here are the video formats supported by various browsers:
+--------------------+----------------------+-------+-----+
| Browser | MP4 | WebM | Ogg |
+--------------------+----------------------+-------+-----+
| Internet Explorer | YES | NO | NO |
| Chrome | YES | YES | YES |
| Firefox | YES | YES | YES |
| Safari | YES | NO | NO |
| Opera | YES (from Opera 25) | YES | YES |
+--------------------+----------------------+-------+-----+