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Xvid is a video codec for PC, whereas codec is an abbreviation for [co]der/[dec]oder, hence describes a program to encode and decode digital video. The purpose of encoding video data is to reduce redundancies - that means to make it smaller for faster transmission over computer networks or for more efficient storage on computer disks.  
 
Hence, Xvid can somewhat be seen as a ZIP for video. But unlike ZIP, Xvid is not lossless. That means that a video after compression and decompression with Xvid won't be identical to the original source. Typically however, a difference to the source is visually imperceptible.  
 
So Xvid removes information that is not important for human perception, which is somewhat similar to MP3 for audio. This enables very high compression rates that allow to effectively work with digital video on home computers at all. To give an example: uncompressed digital video is huge and requires about 100 GB per hour at PAL resolution. The same video would require just 500 MB per hour at very high quality when compressed with Xvid. That is a compression ratio of 200:1.  
 
Xvid is Free Software and released under the GNU GPL license.

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