OK, to answer them in order, here is a stripdown:
1. The data is video frame data (series of still pictures) which will be read from a file on the PC and converted into bytes (24 bits specifically), 8 bits for each Red, Green and Blue components of the video colors. NOTE: 8 bits x 3 = 24 bits
2. These bytes(8 bits for Red color, 8 bits for Green color, 8 bits for Blue color) are sent serially to Arduino through the usb port 24 bits at a time.
3.Arduino will ONLY separate the received 24-bit data into three groups of 8 bits each representing RGB component of the video frame. Arduino will push these three individual groups of bits to three separate shift registers (74HC595 shift register is preffered)
4. Arduino will not send the final data to the display. The final data will be sent to the display by demultiplexers(such as the 74HC154 demultiplexer). The demultiplexers take the data from the shift registers and convert it to many digital output which will be distributed to RGB LED display board (RGB LED arranged in a grid pattern)
5. I'm considering 96x64 resolution display.