The video playback is flawless on Apple TV 4K, full stop. I don't think I've ever seen a dropped frame, across a variety of sources (1080i MPEG-2 OTA, 720p MPEG-2 OTA, 720p H.264 Comcast, and various TVE sources).
Non-4K Apple TV sometimes drops video frames while you're interacting with the on-screen guide, but other than that it's flawless as well.
I believe software decoding is used for both platforms, but the devices have powerful enough CPU's that it works fine anyway. (Both devices are capable of using hardware decoding for MPEG-4 sources, but the developers have chosen not to because their software decoder is more resilient to corrupted streams, and because the devices are fast enough to use the software decoder without issue)