EDIT: I wrote the following before the last few posts!
I'll take a stab at explaining why there is a difference between anamorphic and letterbox on DVDs:
Right Mo, you have to bear in mind that for decades TV displays were almost square, what we call the 4:3 (or 1.33:1) ratio. This means that if you multiple the height of the screen by 4 you get the same number as if you multply the width of the screen by 3. So the image is a little wider than it is tall.
- So TVs were 4:3 displays for decades, this means the broadcast standard had to be in 4:3. So every TV show was shown in 4:3 and that is what the NTSC standard is (in North America) and the PAL standard also (in Europe).
- When DVDs came around they adopted the broadcast standards of NTSC for america and PAL for europe. So the native resolution of DVD video is 4:3.
- Now, the problem here is that many films are in fact wider than 4:3. Many are 1.85:1 or even wider at 2.35:1 (for reasons oneinchpunch explained in his last post). This meant that films don't cleanly fit onto the NTSC/PAL 4:3 native resolution. So what to do?
- Well, you can crop the widescreen to 4:3, but with films composed for the wide 2.35:1 ratio you could end up with 2 actors talking to each other but not onscreen because they stand too far outside of the 4:3 image after you've cropped the sides! Pan & Scan solves this by altering where you crop to 4:3 so you try to centre on the action. So Pan & Scan basically means "smart" 4:3.
- Alternatively you can "letterbox" the widescreen film. That means placing black borders above and below the 1.85:1 or 2.35:1 image so combined the whole image is 4:3. This is what letterboxing is, simply adding black borders above and below an image. The problem with letterboxing is that when you view on a widescreen TV (which is a 16:9 display) you've now got the problem of the image being 4:3, so the TV has to "zoom in" which means zooming into the centre of the image so the black borders are offscreen. This loses resolution because you're zooming, so the image becomes softer.
- The final method of making widescreen 4:3 is called "anamorphic" with this method you take a 1.85:1 or 2.35:1 image and stretch it vertically so it becomes 4:3. This way a TV with an anamorphic mode can "squish" the image back down to its original widescreen ratio. This is what 4:3 TVs and widescreen 16:9 TVs do if they have an anamorphic mode. This way you never have to zoom into the image, even on a widescreen TV, so the image retains its original "sharpness" (resolution).
This is all there is to DVDs. Blu-rays or HD television is completely different though, because the broadcast or Blu-ray standard is actually 1920x1080p in hi-def. This is natively a wide ratio: 1.78:1 just like a widescreen TV. So what they do with Blu-rays is simply letterbox the image if it's 2.35:1, but because widescreen TVs can now accept 1.78:1 ratio as its native image, there's no zooming in involved, it simply displays the Blu-ray in its original "sharpness". if a film is 4:3 they "pillarbox" the image, which means adding black borders to the left and right of the image so it becomes 1.78:1.