Although it's impossible to compress a video without losing any quality whatsoever, technology has advanced to such degrees that you can compress video into manageable sizes for streaming or transmitting without losing noticeably significant quality. The key lies in identifying what qualities of the video are most important for preservation and in recognizing the superior codecs available. By identifying the purpose of and possible venues for the video in question, you will be able to deduce what type of compression procedure will yield the best quality while still giving you a file versatile enough for digital distribution.
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Identify the most important elements to preserve. This will vary depending on your purpose for compressing the video. If, for instance, the sound is of secondary importance, you will be able to compress sound quality to a greater degree and use the saved size to allow higher quality video (although audio is generally much less data-intensive than video). At what size will the audience be watching the video? It is acceptable to lower the resolution if the video will only be viewed in smaller windows, and this can greatly reduce file size. And, perhaps most importantly, what is the file size limit of the video? This will be different if you are attempting to e-mail the video than if you are attempting to upload it to a streaming video site like YouTube.com or Vimeo.com.
Choose an appropriate codec and container. A codec is the algorithm used to reduce the size of the video or audio stream without reducing resolution, and the container is the file format that you end up seeing at the end. Some examples of codecs are MPEG-4 and DivX. Containers would be common video files such as .MOV or .AVI. Choosing the right codec and container is the most important part of the process. Many sites, such as YouTube, recommend codecs such as MPEG-2 and H.264 because they retain quality while compressing file size significantly. DivX, and its generic counterpart Xvid, also have excellent reputations as high-quality, small file size codecs.
Check with the hosting site or with the computer for which the file is intended as to video playing capabilities because this will help you select an appropriate container, or file extension. For instance, all Mac computers, as well as most video streaming sites, play .MOV files because that is the extension created by QuickTime players. Not all codecs are compatible with all containers, so these practical considerations will guide you into making the best choice in this regard.
Compress the video with appropriate software. After you've deduced the best possible compression output for the situation, you can achieve the compression process rather easily using any number of compression software programs. Windows often comes with some form of free video compression in the Movie Maker application, though it will most likely not yield high-quality results. Deluxe versions of QuickTime also have .MOV video compression, which generally yields satisfactory results. Other prominent converters available for purchase include the DivX converter and Sorensen 3. It's possible to browse and try a number of video converters that might be appropriate for the situation by visiting trial sites such as Download.com, which turns up thousands of results for the search phrase "video converter." Just target the search based on the particular codec and container you want.