your questions get a in depth answer in my blog
http://viconco.blogspot.com/
see:
Shrink your video files
"Why would you want to re-compress you video files?
Well, I don“t know about you, but with the quality the Sony HX5 gives me in videos, I find myself using the video function more and more. And that shows on my disk. Where before a DVD was enough to archive several years of picture memories including some clips, now a DVD would be filled in a matter of weeks.
So I need a way of keeping the videos I want but if I could get them smaller without loss of visible quality that would be perfect.
After spending several days work to try all kinds of programs and fiddle with the settings to get exactly the results the way I wanted it it is time to share that information with you. In one sentence: You can save 50 to 75% of space and keep a good quality."