
Disclaimer: Okay, I'll be honest with you, I'm not an expert on VDM. I'm writing this brief tutorial just to show you how I've used it. If you want a more complete (and knowledgeable) guide on using VirtualDubMod, and in particular, in using VDM in conjunction with the powerful scripting tool Avisynth, trot yourself over to animemusicvideos.org and read their "guide." It's a little more demanding, but you'll learn a lot more about VDM than you will from me. Or, you can join the FoolishPassion forums (free membership required to see most of the tutorials) and read zetaminor's excellent tutorials on using VirtualDubMod with the Lagarith codec. (He explains things so much better than me and while it's more detailed than my tutorial, it's also very easy to understand.)
Okay, if you're still with me, here's a bare-bones guide on how to convert your DVD (or in some cases, downloaded XviD/DivX AVI files, which we'll show you how to do at the bottom of this tutorial) to an AVI file suitable for editing.
Bear in mind that for this tutorial, your clips will not have any audio. It's too much of a hassle to do it with VirtualDubMod, at least for me. If you need audio in your clips, consult the MPEG Streamclip tutorial for converting your DVD to DV AVI.
A word about Lagarith: It's excellent quality, but it works better on faster/newer computers, and it takes up a fair amount of disk space (that's how it is with any good editable codec, though). Expect approximately 1 GB of disk space per 5 minutes of footage.
If you have a slower computer, or are hurting for disk space, try using a more lossy codec like MJPEG. (This tutorial on the FoolishPassion forums explains how you can save a lot of disk space by using other editable codecs. Be warned, however, there will be some quality loss, but it shouldn't be too grievous if you are careful.)
First, download the AMVapp. It's the easiest way to get all the software you need to use.
Then, you'll need to rip your DVD with DVD Decrypter (comes bundled with AMV app). There will be an icon on your desktop for DVD Decrypter (or you can look in your hard drive's "Programs" folder to locate it). Place a DVD in your drive and then follow this tutorial on the FoolishPassion forums for DVD Decrypter. (This tutorial does not require a membership to view, but you're encouraged to join to access all tutorials.)
Be warned that a complete DVD rip may be up to 7 GB of disk space. Find a good spot to save your DVD's contents and rip away!
Now, open up VirtualDubMod. You will find it by going to Start >> All Programs >> AMV App >> VirtualDubMod. When VirtualDubMod is opened, go to "File >> Open Video File." Then locate the folder where your DVD rip is. Open the "VIDEO_TS" folder. You will find that there are a lot of strangely-named files there, like "VTS_O1_2" and so forth. Some of these files will be of no use to you, but several will be .vob files, around 1 GB (more or less) in size. These files are your actual video files, which you'll be converting to Lagarith AVI. Open one of them. If it does not contain the scenes you want to convert to AVI, keep searching until you find the one you want.
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You might get a notice about "multiple audio streams found." Select one of them (it doesn't really matter for this tutorial because we won't be using any audio).

Now VIrtualDubMod will import your VOB file (VOB files are actually a form of MPEG-2).

Scroll through your VOB file and find the scene you want to convert to Lagarith AVI. Use the in and out arrows to mark these points.

Then go to "Streams >> Stream list." This is where your audio streams are. Because we fan vidders don't often use audio in our videos (and because keeping audio in VirtualDubMod is a BIG PAIN), let's just disable audio. Click on the "Disable/Enable" button (bottom right) until the audio stream listed is crossed-out. (See screenshot above.) Remember, if you need to make AVI files with audio, consult the MPEG Streamclip tutorial.

Now you're going to use some filters in VirtualDubMod, to improve the appearance of the clips you're making. Go to "Video >> Filters." Then click on the button to "Add" a filter. A list will come up with lots of choices. Find the one that says "resize" and click OK.
It is extremely important that you RESIZE your clip, because the way it looks now is SQUISHED. A raw VOB file looks distorted (usually too enlongated) in VirtualDubMod. There's a long story behind this, which I will not burden you with now. All you need to know is that you need to resize it so your AVI file does not look distorted. Click on the "resize" filter and click "OK."
This is where things get a little complicated. You need to know what the aspect ratio is on your DVD. This short YouTube video gives you an easy to understand tutorial on identifying your DVD's aspect ratio. In addition, you can consult this tutorial for more info. In a nutshell, however, it basically boils down to this: If your DVD picture frame dimensions (with all letterboxes included) have a more rectangular shape, then it's 16:9 widescreen. If its shape (with any letterboxing included) is more boxy, then it's 4:3. But please view the tutorials to understand more.
Okay, now that you know what your DVD's aspect ratio is, you're going to resize it. There are four recommended number combinations you can use.

In this screenshot I show the widescreen number combinations (16:9 is far more popular these days) but be SURE to double-check and confirm your DVD's aspect ratio before resizing it. There's always a possibility that it could be fullscreen (4:3).
YOU CAN USE A DIFFERENT SIZE IF YOU LIKE, as long as it fits into the correct aspect ratio. If you prefer to work with smaller files, try 630x360 for 16:9 widescreen (PAL or NTSC, doesn't matter) and try 640x480 for fullscreen.
For "Filter mode" (see green arrow above) select "Lanczos3."
Click "OK" to leave the resize filter area.
OPTIONAL FILTER: DEINTERLACING. Before you leave the filter area, you need to confirm whether or not your video needs deinterlacing. If you noticed a strange "combing" look in the video as you were scrolling through it (it's especially noticeable in a scene with more movement or action), this is interlacing. It is very common on NTSC (North American and Japanese) DVDs. But you never can predict when it will show up, so you need to actually visually see if it is in your DVD. An example of interlacing can look something like this:
Not only is his face squished and needs to be resized, it needs to be deinterlaced!
If you have determined that your footage needs to be deinterlaced, go to the filters list and choose "deinterlace." (Caution: Don't use the deinterlace filter unless you actually see interlacing. Needlessly deinterlacing your video will degrade quality.)

Click OK to get to the Deinterlace menu.

Usually it's good to go with the top option (Blend fields together).
Click OK when you are all done with deinterlacing your video.
You can also play around with the other filters in VirtualDubMod. I sometimes use the smoothing filter (with a low number like 3) to get out a little bit of extra noise in my video. But this is strictly OPTIONAL.
Click OK to leave the filter menu.

Now go to "Video >> Compression" and select "Lagarith" from the list of available codecs (codecs are another way of saying "video compression"). Then click on the "Configure" button.
For "Mode," select YV12. Check the "Use multithreading" box if you have a newer PC with a dual core processor. (Checking it won't hurt even if you aren't sure what kind of processor you have.)
Now click OK to leave the video compression area.

Now go to "Video" and choose "Fast Recompress" from the list. You'll notice that as soon as you do that, your option for adding filters is dimmed out. That's why you want to resize your video (and possibly deinterlace it) BEFORE you choose "Fast recompress."

Okay, you're almost done! Now go to "File >> Save As" and select a name for you clip, and locate a spot on your hard drive where you want to save it. Confirm (in the red-circled area above) that your video is Lagarith and the video mode is "Fast Recompress." Click to "Save" and watch the progress bar show VIrtualDubMod processing your video clip.
Lather, rinse, repeat: Each time you convert a scene to AVI in VirtualDubMod, you must go through all these steps in order to assure that the quality if your finished file is good (in particular, that it is resized so it doesn't look squished and distorted!). You can select small scenes only, or you can convert the whole thing over. How much you do depends on how much you need from the DVD and how much disk space you have available.
If the only source video you have is an XviD or DivX AVI file, you can still convert it to Lagarith with VirtualDubMod (at least some of the time). Not only is this nice because Lagarith is a much more stable video editing format (DivX and XviD can cause major problems if you try to edit it directly in your video software), but you can do additional things like smooth out video noise by using VirtualDubMod's filters.
When you open an XviD or DivX file in VirtualDubMod, you may get this error message:

If you get this error when opening an XviD or DivX file, just say yes and see what happens . . .
When converting an XviD/DivX file to Lagarith AVI, follow all the instructions given above (for when you convert from a DVD) except you probably won't need to resize the video. Just leave the size as it is, unless you notice that it looks distorted (too long and narrow or too fat and squat).
Okay, that's it, put a fork in you, you are DONE!