Everything you ever wanted to know about video codecs
 

Back in the Paleolithic age – just after man had discovered stone tools and how to load CD-ROMs into caddies – stunning pixelated video played back from our mighty 486s. In short, we have video codecs to thank for that and everything that evolved from it.

In the many years since that early time, video quality has increased thanks to ever-expanding storage capacities and processing power – the two building blocks of high quality digital video. At the same time we also developed a taste for better quality from physical media and video, with a bitrate small enough to be streamed over our measly bandwidth limits.

http://www.atomicmpc.com.au/article.asp?CIID=82898

When my kid asks me what is inside video codecs, I will give him the link. Thanks. :) For now I know I've seen 1/3 of it, I watched Troy the entire movie.