Video can be encoded using various different "codecs" (a word derived from compression - decompression). You need to select a codec to compress the file, and if you want small files sizes, you want something like DivX.
To select a codec in VirtualDub, go Video > Compression. Select the codec you want, then select configure. If you're using DivX (download from
www.divx.com), set the video bitrate to about 600kbps and the encode mode to 1st pass. Click ok, then ok again and encode. Now repeat the process above, but this time select Nth pass in the codec settings. This is called multipass encoding.