It's not a compatability issue -- it's a deliberate lockout feature, which the movie industry insisted on.
As you can read at
http://www.dvddemystified.com/dvdfaq.html#1.10
"Motion picture studios want to control the home release of movies in different countries because theater releases aren't simultaneous (a movie may come out on video in the U.S. when it's just hitting screens in Europe). Also, studios sell distribution rights to different foreign distributors and would like to guarantee an exclusive market. Therefore they required that the DVD standard include codes that can be used to prevent playback of certain discs in certain geographical regions. Each player is given a code for the region in which it's sold. The player will refuse to play discs that are not coded for its region. This means that a disc bought in one country may not play on a player bought in another country. Some people believe that region codes are an illegal restraint of trade, but there have been no legal cases to establish this.......
....There are 8 regions (also called "locales"). Players and discs are often identified by the region number superimposed on a world globe. If a disc plays in more than one region it will have more than one number on the globe.
1: U.S., Canada, U.S. Territories
2: Japan, Europe, South Africa, and Middle East (including Egypt)
3: Southeast Asia and East Asia (including Hong Kong)
4: Australia, New Zealand, Pacific Islands, Central America, Mexico, South America, and the Caribbean
5: Eastern Europe (Former Soviet Union), Indian subcontinent, Africa, North Korea, and Mongolia
6: China
7: Reserved
8: Special international venues (airplanes, cruise ships, etc.)
(See the map at <
www.unik.no/~robert/hifi/dvd/world.html>.)"