How does the in flight entertainment system works?
I found a resource specifically for Emirates, so I'll try to explain it with respect to Emirates, though various other Airlines would use more or less the same principle.


  Emirates uses Panasonic Avionics IFE (In Flight Entertainment) system.
  They have the 3000i which is older generation of IFE system on older
  aircrafts and the latest version ex2 on new aircrafts. Media licensing
  is managed, I believe, by the IFE provider via links to the major
  studios. In this tie up, the media is encrypted and stored in portable
  media loaders for the airline to update on the aircrafts. As the media
  is encrypted so the studio doesn't have much objection in giving away
  the rights to air the movies on board rather quickly.
  
  The Portable media loaders use optical connection for faster data transfer to
  minimize the loading time.
  
  The Main Aircraft Interface (AI) Server is nothing but a small
  computer which is generally called a LRU (Line Replaceable Unit) a
  small box which controls the entire IFE system of the aircraft the
  back end software can either be windows 95 or Linux depending on the
  type of system. 3000i uses windows. The movies are stored on other
  LRUs which are generally an array of Digital Data Servers or Media
  Servers (MS) or in lay mans terms Hard Drives! These are connected in
  a LAN network and ethernet IP addressing is used in the entire
  aircraft system.
  
  The data is distributed over Optical fiber in first phase and over
  normal ethernet network to the specific seats. The interface is done
  via Ethernet Switches which intelligently routes the data from the
  Media server to the Area Distribution box to the Seat Electronic box
  and finally to the Smart Display.


Using a central dedicated computer instead of individual computers on different seats is preferred as it is less costly. Also, the IFE is connected to Aircraft's Main IFE cpomputer, and not the Aircraft's main computer, so by hacking it all you get is the files (IFE files), not the aircraft data, though the moving map system data might be first dumped into the IFE system from the Airplane's main computer