It's a question that has been asked many times before, and will be asked many times to come "How do I compress my movie?"
Whatever codec you use, and there are many, the most important figure is the bitrate. The higher the bitrate, the more bits you get and the higher the quality. More bits also mean a larger filesize. So you have to decide on a bitrate that keeps the filesize down, but the quality up.
If your movie is to be downloaded over the Internet, you will want to keep the size as low as possible. A good bitrate for short downloadable movies is 1.5Mbps (1.5 megabits per second).
There are three main codecs that are currently the best to use:
* Windows Movie Maker encodes movies with the Windows Media Video (WMV) codec and is the simplest to use. It also has the advantage that anyone with a Windows PC will almost certainly be able to watch your video without having to install any other codecs. It's main disadvantages are that it is fairly limited in its options and also a lot of non-Microsoft applications will not recognise it.
* In my opinion, the best codec to use is the propriety DivX or its competitor, the free XviD. At the time of writing, I consider DivX to offer slightly better quality.
* The third most popular codec is the H264 codec used in QuickTime .mov files. I know nothing about this as I'm a PC, not a Mac! You'll have to buy it, by the way.