Determines tradeoff between performance and quality. Leaving it as Balanced gives you the best possible picture/encoding speed ratio. The "Better Quality" option offers the same quality as "Balanced", but provides smaller file sizes. You would normally stick with one of these two settings, as the other ones will take a long time to encode a video. The graphic on the right provides a good indication of the speed/compression tradeoffs. If you really want to use the "Extreme" or "Insane" settings (which uses a "rate-distortion" algorithm), then use it during the last pass. Here's what Gej (the creator of DivX) has to say about this setting:
It's all about your CPU speed and the time you want to allocate to encode a video, on a modern 2.8Ghz CPU insane encoding mode will take around a night (8 hours) for a 2pass, 100 minutes movie, if you can afford that kind of time, this is the best option quality wise, remember, you encode once and view it several times, this can make the time investment worth it.
Enabling "Enhanced Multithreading" allows DivX to take advantage of the latest dual-core and hyperthreaded CPUs. Enable this for a speed improvement.
These options allows you to select the three special encoding methods that will try to improve the quality of the encoding, while decreasing the file size.
DivX's use of profiles limits the use of these tools, and you may only be able to select some of these options if you disable the use of profiles.
Bidirectional Encoding - Bidirectional encoding allows for the use of B frames in the encoding, in addition to the I-frame (data for this frame is completely stored) and the P-Frame (predicted frame). There are two available options, "Adaptive Single Consecutive" and "Adaptive Multiple Consecutive", otherwise known as single and multiple B frames (may not be supported by DivX certified devices). It is recommended that you enable this option - the recommended is "Adaptive Single Consecutive". Not available for the "Handheld" profile.
This setting determines the percentage of blocks not tracked by the motion search algorithm to trigger a scene change. Leave this at 50%, but if you do need to change it, make sure it is between 40% and 60%. This option is disabled when the "Multipass, Nth pass" Encode Mode option is selected.
Keyframes helps you to skip forward/backwards (seek) through the movie (when you skip, the picture has to land on a keyframe first). Keyframe are automatically inserted at scene changes, but in case you have a movie where the scene never changes, then set this to a reasonable value to avoid having no keyframes. For example, you can insert a keyframe every 10 seconds by multiplying the framerate of the movie (eg. 23.976 or 25 or 29.97) by 10 (eg. 240, 250, 300), and entering it here. Keyframes will still be inserted at scenes changes, but if the interval between keyframes (or scenes) is greater than the specified number of frames, then another keyframe will be inserted.
Quarter-pixel search - Q-Pel (Quarter pixels) increases the resolution of motion search, and hence, will improve quality, especially with the fluidity in motion of objects in the distance. The motion search resolution is increased, the search time will be longer and hence, encoding time will be longer as well. Not available when profiles are used (that is, do not use if compatibility with consumer devices is an issue).
Global motion compensation - GMC (Global Motion Compensation) is useful in improving the quality of scenes where lots of movement (especially panning, zooming) occur, although these types of scenes are very rare in most content (and so there is only a very small advantage to enabling this option). Not available when profiles are used (that is, do not use if compatibility with consumer devices is an issue).