It can't play MKV videos because it isn't compatible with them, that is just how the hardware and iOS are setup. You can find the tech specs for various iPods on Apple's website. I don't know what model you have but the only iPods currently on the market that can playback video are the iPod touch and iPod classic. The 6G/7G iPod nano cannot playback videos, period. Now, if you have an iPod touch and the MKV videos are not in high definition, you can always download an app that would play them back (search the app store or use Google to find the best one).
HD MKV videos will have to be converted since no app, except the built-in video app of the iPod touch, is able to smoothly playback HD videos (at least from what I have tried). There are plenty of free converters out there such as Handbrake. Again, you can use Google to find the converter that suites you. Lastly, if you have an iPod classic, you will just have to convert the videos.
64GB iPhone 5 | 64GB iPad mini | AppleTV 2 (2012) | AppleTV 2 (2010) | 2012 15" MacBook Pro, 1TB SSHD, 16GB DDR3 1600 MHz, OS X 10.8.3 Mountain Lion | Apple Lossless | iTunes AAC 192kbps VBR | iTunes 11.0.2| Library size = 1.04TB | Legacy iPods: 3G 40GB, 4G 40GB, 5G 60GB, 160GB iPod classic (2009)