This is paraphrased from The Essential Guide to Learning Blender 2.6."

On the Output Panel, ignore AVI jpeg and AVI Raw. Choose FFMpeg, which is really a workhorse that covers most of the options you'll need, then open the Encoding Panel directly beneath it. If you want AVI, then choose AVI. If you choose AVI or Quicktime, then you'll have to choose a codec from the control to its right. The author recommends H.264 or MPEG2, although he prefers H.264 because it's more modern and compressed. For the bitrate, the standard setting of 6000 is perfectly adequate for most things, but if the size of the file is too large, then reduce the bitrate. If there are artifacts, increase the bitrate.