MPEG was designed in the first place to be a video compression format (using pixel averaging).
From what I've read, MPEG-1 had limits up to VCR quality (certain no of pixels x certain no of pixels at certain frame rate) [approx 320x280x20 or something like that]
MPEG-2 is used in DVD's (DVD's aren't lossless movies) [i.e. every frame isn't a bitmap, otherwise they'd need 500 Terabyte DVD's]. Up to 1120x800pixels x30fps [or something very close to that, this is off the top of my head]
I understand the concept of different "streams". Like audio+video in MPEG. The concept of a container is a little rougher though, but I think I get it.
Are these streams the same as layers? I wouldn't think so, because theres MPEG-1 layer 1,2 and 3
AAC has no relation to MPEG-1. I think initial versions used MPEG-2, but all now use MPEG-4 (which is apparently lower quality/higher compression than MPEG-2 in terms of video formats)
By backward compatible, do you mean an MP3 decoder/player supports MPEG-1 layer 1,2 and 3, while an MP2 decoder/player supports only layer 1 and 2??
More confusing than it seems this stuff, not all headphones and sound waves