Picture-in-picture is a new feature in macOS Sierra in which you can send a video to a corner of the screen, where it’ll remain playing “on top” of other windows while you carry on with other tasks in other apps. Yet, amazingly, picture-in-picture is only available in the Safari web browser (or if you import the movie into iTunes, which isn’t always desirable).
If you use the QuickTime Player app, you DON’T get access to picture-in-picture.
God knows why Apple imposed this limitation but the solution is simple if you want to quickly play a video file on your hard disk using picture-in-picture – just open a new tab in Safari, then drag the file on top of the address bar until the cursor turns into a green plus symbol. The video will start playing within Safari and you can then right-click it to select the picture-in-picture option.
This will only work with video files that macOS natively understands, which is pretty much limited to MP4. You can always convert video files in other formats via the superb Adapter.