Is there anyone that knows how all these video formats work?

Okay first things first, a video codec and a video format are not the same thing. A format is usually a container with restrictions, a codec is the "thing" you need to encode decode it.

Almost all codecs are derived from the all popular JPEG standard which is simply taking block of pixels (usually 8x8) and translating it into a gradient from x to x color. Of course multiple passes make the image more life like but will take more place. In video, it's almost the same thing, except there are keyframes. For example, every 1 second, an image is made...at 30 frames per second it means one out of 30 images is a keyframe, the others are simply tweened. A tween is the interpolation. For example, a video of a car racing. In the first frame, the car is at the right, and for every other frames until the next key frame, it will be a modification of that first keyframe because after all, only the car is moving, why would the computer need to redraw the scenery every time? This is why when you look at detailed textures in encoded videos, every couple of seconds, you will see a "glitch". It's visible in hair, grass and other similar textures.

DivX is a codec that was made to render long videos (over an hour) and has gain popularity because it's great for illegal movies on the net ... making them smaller in size. Of course there was a side effect, the sound would sometime get un-synched.

AVi is a format, in which a lot of codecs can be used. (check Google for a complete list)

VOB is the pure video data of a DVD. It is detached from the sound as multiple soundtracks (languages) can be used with the same video. It's a different kind of encoding. It's simple so that most DVD players can decode them...it's a standard and cannot be changed as it would mean less compatible with old machines.

They are not trying to confuse us, but it is confusing. You see, in computers, it's easy to install a patch, a new codec and everything will be fine, but with hardware such as DVD players, you can't always update a driver. That's why they choose standards that should stand the test of time. Of course, you can't stop the progress so newer codecs are developed every year...so that the best one can be implemented in the next generation of devices... Same thing happened with MP3s, at the beginning it was only for computers to read, but as soon as it became popular, devices could use it because it was tested rigorously (mostly be pirates and illegal song downloaders)

http://www.afterdawn.com/glossary/