H.264 is a relatively new video encoding standard that aims to provide high quality video at low bitrates. It is also known as MPEG-4 Part 10 or AVC (Advanced Video Coding). It improves upon the MPEG-4 Part 2, specifically the Advanced Simple Profile (ASP), standard that is used by XviD and DivX. The standard includes four profiles (listed from most basic to best): Baseline, Extended, Main, and High.
It was published as an official ISO standard in May 2005.
With a good encoder, such as Nero Digital or x264, the results using this codec at a given bitrate can be better than all other current video compression codecs including XviD. Unfortunately, decoding it can take a heavy toll on slower computers.
Both competing next-generation media formats have announced they are adopting H.264 High Profile as one of the three codecs to be used to encode the high-definition video that will be stored on their discs, one or both of which will replace DVDs. This is an example of the widespread acceptance of this new codec as a high quality and very efficient encoding standard.
Nero Digital includes a DirectShow decoder for H.264, and so do recent builds of ffdshow. Interestingly, as of the ForceWare 80.40 (Beta) driver, the GeForce 7800 series can decode H.264 in hardware. There are also plans of releasing some standalone players that can play H.264, the first of which being the KiSS DP-700. In the slightly further future, all standalone players that play high-definition video from next-generation media will need to decode at least H.264 High Profile, due to the reason stated above.