What is transcoding, and why
Transcoding is the process of re-encoding some form of media from a source format (e.g. mp3) to a destination format (e.g. ogg). Often transcoding is required when a codec isn't free or has unacceptable restrictions on the use or distribution of the codec. Other times content needs to be optimized for size verses quality.
Formats for transcoding
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The MP3 format is encumbered with some awkward patent restrictions. There is a Free alternative called Ogg Vorbis. Ogg is generally more extensible and has finer control of quality. For these reasons OLPC uses this format for audio. For notes on how to transcode materials see: mp3 to ogg
Another form of format conversion that is similar to transcoding is called vectorization. Vectorization is the process of taking a pixel image and turning it into a vector image. Vector images are infinitely scalable, very small, and more editable. Please see the page on vectorize for more information.