Your first hint was right. This is mostly (if not only) due to copyright. The rights on any production is subject to a contract that you implicitly accept when you watch a video, read an article or listen to a podcast. And these contracts depend on the territory you are on.
As you mentioned, you can find DVD sold abroad. But in that case, there is a contract between the producer, the artists, the seller to distribute the DVDs abroad. These conditions of the contract are usually decided from the beginning of the production, mostly because it implies a lot of people (for a movie you can think of actors, director, screenplay author, producer, musicians, sellers, TV networks, possibly movie theatres, and any other person involved).
I mostly have French references to back that up. The French public TV network has some "catch-up TV" website with a specific subset for French expatriates to watch the programs. At the Parliament, its members representing the French from abroad often raise the issue of the too limited set of programs available to viewers from outside of France.
There is the problem of sport competitions, movies and the kind, that want to make the most money out of it so they sell these rights (for example the Olympic Games are usually sold to one TV network for each country) and this is probably expensive for few expatriates, but there is also the problem of other programs that are only made for one TV channel. And even in that case, the contract does not allow easy share:
« les conditions de diffusion en télévision de rattrapage des œuvres audiovisuelles dépendent directement des contrats passés avec les producteurs » relatent Lefebvre, Mariani et Schmid. Ces producteurs rechignent à céder leurs droits dans le monde entier et la loi ne peut forcer la main puisque « la cession de droits de propriété intellectuelle ne peut relever que d’accords contractuels. »
Which can more or less be translated as the fact that this territorial constraint mostly depends on the contract between the TV channel and the producers. The producers are not willing to give the rights to broadcast it abroad. And the law cannot be used to bypass these contracts.
As you saw, there is a part of the website for French expatriates, so there is no technical limitation. But there are legal limitations.
And by the way, if you have ever tried to buy ebooks from abroad, you would notice the same limit. It is harder or impossible to buy/read an ebook abroad for the same legal issues (downloading an ebook does not require much bandwidth).
My current hypothesis is that these region blockages are to prevent long distance congestion and as such using the VPN or DNS tricks are allowed. Is this a correct assumption, or am I missing something else?I don't think Netflix cares about network congestion in remote corners. They do care about is their distribution contracts with various media companies. They generally only have license to re-sell their content to specific regions. By bypassing their region limitations, you are no doubt in violation of your contract with them, and violating their contract with the copyright holders.