No idea on how to rip BluRays but I do know something of video files.
A mkv is a container as is an avi. It is what you put in the container that makes the difference. mkv's are now often used because you can put more and different things in the container, ie subtitles, more than 2 audio streams etc that you can't with an avi.
Anyway traditionally avi's contain a video stream encoded by MPEG-4 Part2 (ie xvid or dvix) and up to 2 audio streams encoded in either mp3, AC3, AAC or DTS.
mkv's tradionally use AVC (H.264/MPEG-4 Part 10) for the video with multiple encoded audio streams encoded in either mp3, AC3, AAC or DTS and subtitles.
The visual quality of the ripped BluRay depends ultimately on the video/audio rate and as this increases so does the file size, so some comprises are made. BluRay Video movies have a maximum data transfer rate of 54 Mbit/s, a maximum AV bitrate of 48 Mbit/s (for both audio and video data), and a maximum video bit rate of 40 Mbit/s. The video can be encoded in MPEG-2 Part 2, H.264/MPEG-4 AVC, and SMPTE VC-1. The last 2 codecs allow more video per disk due to their better compression efficiency.
So when the Bluray is ripped you usually use a lower bit rate so that the file is smaller, but you don't have to. A single sided BluRay disk can hold 25GB, dual layer 50GB.
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