The movie studios claim Real's software violates the Digital Millennium Copyright Act because it circumvents copy protection technology built into DVDs. Actually, Real Networks licensed the software that lets them legally de-crypt and re-encrypt DVD content. If they're guilty of violating the DMCA, so are the manufacturers of every US$50 DVD player out there.
Essentially, Real's software allows you to take a DVD you own and make a legal copy of it on up to five machines. Unless you've got the hacking skills of a Jon lech Johansen, you can't share these copies with anybody else without handing them the drive you copied the movie to. And if you really wanted to swap movies illegally, there are, oh, about a gajillion easier ways to do it than by abusing RealDVD.
The MPAA's other argument: Customers will "rent, rip, and return" DVDs from Blockbuster or Netflix. So instead of spending $10 to $20 for the movie at Wal-Mart, you drop $5 at Blockbuster and make copies you can watch on your computer. Real admits that's possible (and illegal under the terms of its license). But doesn't that sound like an awful lot of trouble? If I really want to watch a movie over and over and over, I'll just keep putting it back in my Netflix queue (or simply not return it after I get it the first time). The people who still go to Blockbuster are probably the least likely to have heard of RealDVD, let alone use it.
You can argue legalities all day long (and, if you're a copyright attorney, make hundreds of dollars an hour doing it). But the fact is that the recording and film industries have been trying to kill off the concepts of fair use and the creative commons for decades. Today's copyright laws are written by industry lobbyists and handed over to friendly members of Congress for a rubber stamp. They do not represent the will of the people.