Hi desiraj, welcome to CDFreaks!
I suggest you use the default joint-stereo mode with the LAME encoder - it will produce the best quality compared to size, since it allows the encoder to select between left/right stereo and mid/side stereo for each frame.
Unlike the “joint stereo” of some other encoders, the joint-stereo mode in LAME is NOT a quality-reducing partial merge of the left and right channels for higher frequencies for the sake of saving bits at a cost in quality.
You can find the LAME command line reference here (and other places):
[B]-m s/j/f/d/m[/B][B] stereo mode[/B]
Joint-stereo is the default mode for input files featuring two channels… [B][I]
In this mode, the encoder makes no use of potentially existing correlations between the two input channels. It can, however, negotiate the bit demand between both channel, i.e. give one channel more bits if the other contains silence or needs less bits because of a lower complexity.
In this mode, the encoder will make use of correlation between both channels. The signal will be matrixed into a sum (“mid”), computed by L+R, and difference (“side”) signal, computed by L-R, and more bits are allocated to the mid channel.
This will effectively increase the bandwidth if the signal does not have too much stereo separation, thus giving a significant gain in encoding quality. In joint stereo, the encoder can select between Left/Right and Mid/Side representation on a frame basis.
Using mid/side stereo inappropriately can result in audible compression artifacts. To much switching between mid/side and regular stereo can also sound bad. To determine when to switch to mid/side stereo, LAME uses a much more sophisticated algorithm than that described in the ISO documentation, and thus is safe to use in joint stereo mode.
[B][I]forced joint stereo [/I][/B]
This mode will force MS joint stereo on all frames. It’s slightly faster than joint stereo, but it should be used only if you are sure that every frame of the input file has very little stereo separation.
[B][I]dual channels [/I][/B]
In this mode, the 2 channels will be totally independently encoded. Each channel will have exactly half of the bitrate. This mode is designed for applications like dual languages encoding (ex: English in one channel and French in the other). Using this encoding mode for regular stereo files will result in a lower quality encoding.
The input will be encoded as a mono signal. If it was a stereo signal, it will be downsampled to mono. The downmix is calculated as the sum of the left and right channel, attenuated by 6 dB.