Digital camera purchasers who like to shoot video often ask if there is an advantage of using a camcorder instead of a digital camera to make movies. The answer is complicated.
It really depends on which you do most: shot video or shoot stills.
Memory and video recording
Many camcorders come with built-in hard drives, or use mini-DVD, etc. These make recording large amount of data easier, as high-quality movies drink up memory fast. For example, my Canon S2 makes great movies at 640×480 resolution with stereo sound (VGA equivalent), but 8 minutes take up 1 GB of data.
Some digital cameras offer a much higher compression rate but always at the cost of quality. The MPEG4 format is generally considered as offering the best balance between quality and size (1 GB of data gives the user around 30 minutes of video). However, editing MPEG4 will always create image artifacts, something that you will not get with a lower compression rate (again referring to the S2, this camera uses the MJPEG format, which is almost uncompressed). Camcorders sometimes use MJPEG, sometimes MPEG4, and some will give you a choice.
Remember that after you have transferred the videos to your computer, processed them, edited them, cropped parts, added titles and more, you can always save the final version in a compressed format to save some memory space on your hard disk or DVDs.
Some free video editing programs, such as Microsoft’s Movie Maker, give you control over compression. Just remember to balance the compression and quality to a level that will be acceptable for viewing.
In general, there is no point in filming a high-quality sequence to downsample it too much afterwards. You can still improve compression significantly. The MJPEG format can be compressed to about 25% of its original size without visible loss in image quality.
Also keep in mind that a suitable level of compression depends on the intended use: a HD TV set will require a much higher quality than posting a video online.
Video camera hardware
The lenses of a camcorder often, but not always, provide a greater zoom range. You have to be conscious of the aperture, which can be limited with a camcorder.
Many digital cameras do not allow you to zoom while shooting video but most camcorders do. Be aware, however, that with both systems, manufacturers will often boost the claimed zoom reach by using digital zoom. Without exception, the use of a digital zoom should be avoided as it decreases image quality/resolution.
Some camcorders have built-in lamps to illuminate a scene, which is very useful for low-light movies. No still camera offers this feature as of this writing. Just remember that as with a camera flash, a lamp will not be of much use if the subject is very far away.
Many camcorders also have a swivel LCD that aids in framing while shooting video. Some cameras (mainly, but not exclusively, from Canon) also offer this feature, which many find very useful.
Hybrid digital cameras/camcorders
Some companies offer true hybrid movies/stills cameras. They take high-quality, high definition video and are also capable of taking satisfactory still shots. Depending on your needs, these might be a good solution. Check the image quality before deciding.
Digital camera or dedicated camcorder?
For occasional movie making, a digital camera may be all you need. Whichever one you decide to but, make sure it has Optical Image Stabilization. Optical IS helps prevent camera movement while shooting.
If you plan to primarily shoot video, a dedicated camcorder offers more relevant features. Whatever you choose, start by making a list of the features that are important to you.