Long story short: S-video is better than composite. Component is better than S-video. If you are able to use component connections, it is recommended that you do so. It is not the quality of the cable that is improved, but rather the method by which the color signal is transmitted.
I'm sure the DVD FAQ can fill you in if you have more questions.
Composite and component are 2 different types of video. Composite is the old single cable, usually with a yellow RCA plug on the end. It's frequently the only video out on VCR's, although some also have S-Video.
Simplistically speaking, component video separates the colour spectrum into 3 different â€œchannelsâ€ and is far superior to composite, which contains all video information in one channel.
Worst to best quality is composite, S-Video, and component. High definition devices, such as satellite receivers, carry their HD signal over component and/or VGA. Progressive scan DVD players have component outputs as well.
This is a somewhat simplistic explanation. You can find lots of information by searching on this or some of the other forums, such as HDTV Hardware.
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