1. Historically, a version of DVD technology. DivX was a DVD-like video format, first publicly launched in September 8, 1997 by Circuit City and Los Angeles law firm Ziffren, Brittenham, Branca & Fischer. It was based on the idea that you would buy a player, hook it up via a phone line (players had a modem), and set up an account. Now, you could buy DivX movie discs for low fees - and to view it, you paid a small fee (for which you could watch the movie as often as you liked for 48 hours). There was thus no need to return the disc.
While this system was in practice interesting, my feeble brains screamed "Ecological disaster!" from the first second... Also, there were practical reasons for the downfall: DivX players had fewer features than average DVD players of same price class, they were much more expensive than low-end DVD players, the format didn't support many advanced features found in DVDs (for instance, only pan and scan was supported by players, no letterbox or anamorphic!) Also, most movie makers supported only DVDs, and had no intention to use DivX. Circuit City discontinued the system in June 16, 1999 and the system stayed up for present subscribers until July 7, 2001.
There are, of course, now DVD rental places that are almost as interesting as DivX (Netflix, for instance) - personally, I wish I knew a local place with such luxury =)
"Divx, October 27, 1995 - July 7, 2001. Abandoned by her creators, scorned by the home theater elite and rabble, but prized by her legions of everyday users - may she rest in peace!"
- From D.O.A website (see address below)
It might also be worth mentioning that Circuit City had hired people to make "fan pages" of the system to the WWW... they just forgot that the fan pages were too damn spiffy to be created by your average Geocities-using teenagers, and most of the stuff was directly taken from their marketing materials...
Sources: Various "anti-divx" pages via Archive.org and my personal memory =) notably http://www.bandivx.com/, http://www.dvdresource.com/divx/
Slashdot article about DivX demise: http://slashdot.org/article.pl?sid=99/06/16/1242245&mode=thread&tid=97
← Look! /me being a Slashdroid! Yeah, I have grown up since =)
The Divx Owners Association: http://www.the-doa.com/ (a strangely fitting acronym =)
2. A digital video codec developed in Project Mayo / DivX Networks. Originally, the codec was a rip-off of Microsoft's MPEG-4 video codec, hex-edited to work with .avi files. This hacked codec is technically known as "DivX ;-) 3.x" (with smiley as part of the name). The new versions dropped the smiley. Originally, the name was a joke about the failed rental-DVD replacement. Apparently, at least one user laughed.
However, this phase is long gone - DivX versions 4.x and later are based on OpenDivX, and are supposedly fully MPEG-4 standard compliant (MS codec isn't!). All of the code is written in house, no MS code is involved. They also have software patents on some of the features - not to even consider that MPEG-4 is already a pretty dangerous patent minefield in itself...
The codec normally uses bit rate of around 780 kbit/s, which is somewhat smaller than VideoCDs use. Quality is almost acceptable and definitely viewable, but single still frames look Really Ugly! With my machine (Pentium III, 600MHz), real-time capturing of PAL VideoCD-style (352x288 at 25 frames per second) video was possible. It must be noted that DivX playing requires sort of heavy hardware, too, due to insane level of compression involved...
The video picture at 780 kbit/s is watchable from couch if you show it via TV (using computer with a TV-out video card), but with monitor, the picture is... how do you say it... oily.
Normally, DivX .avis use MP3 (MPEG-1/2 audio layer 3) as the sound compession codec. There's a widely used warezed version of Fraunhofer's ACM sound codec that's used for this purpose - the codec that comes with Windows 9x is limited to 32kbit 22050Hz or something like that, obviously to drive people to use WMA... Personally, however, I tossed that warez codec overboard when an ACM version of the famed LAME MP3 codec was released. Apparently Ogg Vorbis works nicely too, though personally I had problems getting the ACM codec working (it works for other people, it seems); I've had reports that multiplexing a DivX .avi and a Vorbis file to .ogm with OggMux and using OggDS and any DirectShow player works just beautifully. (Though I no longer use DivX with this, VP3 is to be Theora, an open and less minefielded video codec for Ogg.)
The only problem I saw with DivX Windows codec v4.12 is that while seeking back and forth with key frames is easy, seeking to delta frames (particularly backward) is slow. Normally, DivX codec generates key frames only on scene changes, not on constant intervals like most sensible codecs...
Development of OpenDivX (the "open source" project) has stopped, so regrettably there's no up-to-date open-source codec for Linux and other OSes, just closed-source binary-only library files. Effectively, DivXNetworks screwed the contributors a bit when they moved to closed source model... However, the source code still lives, and is being updated by XviD project (they seem to be contrary to everything DivXNetworks currently stands for, including the name =).
DivX 5 is practically aiming for MPEG-4 compliance, and that is also the goal of the XviD folks, so there's practically very few bitstream compatibility issues (probably just some issues with FOURCCs, but these can be addressed - XviD can identify the encoded file as DivX 5 or XviD, as desired.)