The various video codecs do in fact compress your video. MPEG4 codecs like Divx or Xvid or VP3 all do a great job. This presumes that you will use PocketDivxCe as your player of choice. You can use VirtualDub (free) to do your encoding. Other programs are AviUtl or AViEdit. You can even use TMPEGenc although this programme is known for its ability to encode MPEG1 and MPEG2 movies. This leads me to the other alternative video player, Pocket TV. iF you encode using mpeg1, your files will not be as small but the quality of your clips can be slightly better depending on your PDA. This is because you can throw more bits per frame at the decoder before the cpu chokes. With MPEG4 based codecs, your file size will be significantly smaller but because the decoding algorithms are more math intensive, the cpu chokes on much lower bit rates.
So you will need to choose between file size and quality. There are a lot more things to consider in this equation, but this will get you started.
