The advice you have been given is correct. Because video data is so large it must be compressed to store in a file and then decompressed to be played. The software that COmpresses and DECompresses is called a CODEC. Vegas does not support the Matroska (MKV) codec (because it uses DirectShow and Vegas only supports the older Video For Windows codecs) so you must use another program like Super(c) to convert the file into a format (using a different codec) that Vegas can edit. Two free lossless VFW codecs that are good for this are Huffyuv and Lagarith. You have to find these and download them and install them on your PC to use them. Then in Super(c) you can use them to convert your video file into that format.
This is not a detailed step-by-step but you want to:
(1) Download Super(c) and install it.
(2) Download the Lagarith codec and install it.
(3) Use Super(c) to convert your MKV file to AVI using the Lagarith codec.
Use Google to find this free software. Hope that helps,
~jr
http://www.johnrofrano.com
http://www.vasst.com