It depends on if you want to edit the videos and how you want to play
them back. If you don't want to edit them and you want to put them on
DVD and watch them on a standard player and TV then I'd say to capture
them in mpeg2. However, if you want to edit the videos at all or if you
want them to be replayed on your computer, then I'd capture them with a
lossless codec (such as huffyuv) and then use Divx or another compressor
to get the file size down.
As for resolution... VHS is not a good format to start with. You aren't
going to be able to improve the quality of the capture at all. It
depends on what format for television broadcast your country is on. If
you are in North America, you are NTSC... if you are elsewhere you are
probably PAL.
Go to this site:
http://doom9.org/
Go to Guides->TV Capture
It can go into a lot of detail to help you.
Happy videoing!
Shannon