Depends on the server you are using to host your media sever from. If you're using a Raspberry Pi, then you might not be able to support transcoding at all, definitely not for a 4K AV1 video and a lot of modern formats. So even if Apple TV can play it, the Plex app won't attempt it and will force transcoding from the server.

Even if your server can support transcoding, all transcoding results in quality loss, so if you want to enjoy your media in the best formats then you want to direct play. Just depends on the media you are playing and how much you care about the quality.