Well, you can either make the highest quality video by capturing it in large resolution uncompressed but you probably don't want to do that since it is mostly waste if your videos are for casual use and that takes a lot of space, even for a few minute video.
For general videos you might want to do xvid as the codec for capturing since it is pretty fast, at a high enough bitrate (like 1500) so most of the video isn't too terribly ugly. Make sure it is set to one pass. You will want to reencode the results mainly because you can then use two-pass encoding, audio encoding (because that is uncompressed when capturing and very large), decimate garbage frames, and making the file size lower. A simple program that can do this that probably should work is mediacoder. Also, you can capture what you want, doesn't have to be from startup.
