Some of the more basic ones are a very rudimentary NTSC analog video in to H264 encoder board that is tiny in weight and power consumption. They're using the same NTSC analog video-out forward flight cameras as are used in pure analog FPV. It's also not doing really 'complex' H264 encoding. Very similar to what you would get for the H264 encoder in a cheap $60 IP (RTSP) security camera.

There's more advanced ones that take video input from a MIPI digital video interface or native HDMI input.

Not just because latency but also because of cost, size, weight, power.