Just to add a bit to what Kerry56 told you…
When working with video, if you want to edit the video, or add transitions/effects/filters, you want the video in DV-AVI format. If you just want to convert the video to a dvd, and if your pc has the capabilities of doing a hardware/software conversion direct to MPEG2, you can capture directly to that format (or in cases, wmv, mpeg4, etc…) But in my opinion, it is best to capture to dv-avi, and then convert to whatever format you want.
I have both semi professional software (Vegas Video, Adobe Premiere) and consumer level (Ulead Studio 11 plus, and Pinnacle Studio 12). For the general user, Ulead Studio, Pinnacle Studio, Adobe Premiere Elements, and Vegas Movie Studio, all offer more than the average user will ever need, and all are good all in one editing/authoring packages.
As with anything, there are other special tools that will be needed for specific functions. For example, if you have shaky video, you will need virtualdubmod with the deshaker filter. For other specific functions, AVISYNTH has some very useful tools.