Here's the list of file types:
Mpeg1 (or VCD): good conversion ratio (makes small files) but it is a lossy format. You'll get a file that can fit on a regular blank CD, but the quality won't be that great. As an added bonus, most DVD players will also play mpeg1. Mpeg 1 can be captured in real time.
Mpeg2 (or DVD): Standard DVD, will work in all DVD players. Very good quality pictures but a very large filesize. You cannot fit more than a few tens of minutes onto a standard blank CD. Mpeg 2 can be captured in real-time.
Mpeg4: Very good quality pictures, very small file size. You can fit about 2 hours of video onto a blank CD. This will not play back on any current DVD player, so you're limited to watching it on your computer only. Mpeg 4 cannot currently be captured in real-time, so you will need to capture the origional clip in mpeg2 and then convert it to mpeg4 at a later date.
AVI: a very old format. Small file size, poor quality, lots of trouble syncronizing the sound to the picture. Only very few DVD players will play it back.
There's a few others as well, but these are either legacy or else not popular enough yet.
Bottom line: If you're not worried about portability (say going to your friends house and sticking it in his DVD player) then go for mpeg4. If you are worried about portability or if your source is of poor quality then go for mpeg1.
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