How does an iPhone stream HD content to an Apple TV over AirPlay? Even 720p content is almost 1 million pixels per frame; 24 bits per pixel at 60fps is 180Mbps, which is clearly impossible. So how is the data transferred? 

Some guesses:


Heavy compression. 
Apple video playing APIs, which send the compressed stream is sent to the Apple TV, for the Apple TV to decode itself
Apple video playing APIs, which send a URL of the data location to the Apple TV.
The video is not sent pixel by pixel, but is encoded with a suitable video compression algorithm specifically designed to use much less bandwith while still being able to reproduce the original video faithfully to the human eye.

Without having investigated a suitable guess would be that the h264 encoding is used.