DivX ;-) is a hacked MPEG4 codec allowing the encoding (and decoding) of high-quality MPEG4 video streams. MPEG4 is designed for low-bitrate applications and thus offers an excellent size/quality -ratio. As such DivX is ideal for very high quality DVD backups and other applications requiring high video quality at limited space.
Works beautifully with VirtualDub.

Note! You should definately install DivX Codec v6.x as well -- it supports multiple new features and isn't in alpha stage anymore.