Velocity opens a world of possibilities: it literally has hundreds of thousands of functions because it can take advantage of the entire Java language as well as some bundled extensions.
For something as versatile as Velocity it can be easier to say what functions it's not suited for!
The principal thing Velocity can't do is update lead fields permanently. It's designed to display Lead, Company, Opportunity, and Custom Object data in email content -- together perhaps with lookup data that doesn't exist on leads at all, just within the Velocity world itself. It can filter, localize, reformat and layout that data just about any which way you want in an email. It can encrypt, hash, encode field values in links. But the underlying data in the Marketo database will not change. (Of course this read-only quality is more often a benefit than a drawback. For example, a datetime value must continue to be stored in its original format, so you can localize the output email-by-email; similarly, there's no need to permanently save somebody's "most recent" Opportunity entry when that most recent one will change over time and you can locate it on-the-fly.)
Velocity can vary output using an intersection of multiple segmentations, which nothing else in Marketo can do (but there's no WYSIWYG designer popup like you get with snippets/dynamic sections); Velocity can lookup data in a shared product catalog, which is also impossible to do any other way; and only Velocity can output Oppty and CO data. But these are admittedly things you won't get right unless you have/are a coder.
In general, Velocity offers a more robust (and correspondingly harder to learn) superset of other Marketo output features.
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