Ripping is a term used for moving the data from the original disk to the hard drive. You should rip the movie either in file format or as an ISO, then work with it from the hard drive if you want to change the format.
The quality of your end result depends if you want to compress the movie or not. It isn’t a function of what format you put it in. You can take the main movie out of the original blu ray, and put it into an mkv or mp4 file without disturbing the original quality. This mp4 or mkv file will be very big, and if you are simply playing it on a computer, then there is no need to remove it from the original m2ts file from the blu ray Streams folder.
You change formats to fit your playback equipment. Most media streaming boxes, for example, work with mkv or mp4 files, but not the m2ts files found in blu ray. As I said before, there are many tools for this format conversion, like MakeMKV or BD Rebuilder. One I didn’t mention before is called BluRip. It can make the mkv file for you from a ripped blu ray movie, with or without compression, depending on what size output you want.
Compressing the video to smaller sizes will always adversely affect the quality of the film. Whether you can see any degradation is dependent on a lot of different factors, but how much compression you apply is a major one.