There are two kinds of aspect ratio: display aspect ratio and pixel aspect ratio. Display aspect ratio is the proportion of width and height of a picture typically expressed given square pixels. Most video is 4:3, but 16:9 is becoming increasingly popular. A 640 pixels wide by 480 pixels high image has a 4:3 display aspect ratio. However, the 4:3 DV aspect ratio is actually either 720x480 (NTSC) or 720x576 (PAL) pixels of resolution. Therefore, DV pixels are not square whereas most computer display resolutions use square pixels.
Using the XVideo display method, Kino blindly assumes you are using a square pixel display resolution and compensates for the differences in pixel aspect ratio to achieve a better looking preview.