Open DVDx, which is the program we will be using to encode the MPEG-2 rip into VCD compatible MPEG-1.
At this point, the tutorial splits into two streams; one for if you ripped the DVD and one for if you are going to encode directly off the DVD disc itself.
If you Ripped the DVD
You've ripped the DVD onto your computer and are now set for the encoding. Hopefully. You see, there are some bugs in all DVD rippers with which sometimes the rip is stuffed up. I will show you how to detect this, and hopefully rectify it, in a minute.
Okay, first open 'File' the click 'Open IFO'. When you ripped your DVD, SmartRipper put a *.IFO file in with the rip, for programs like DVDx to use. Using the Open dialog that came up, navigate to the folder where you ripped the DVD into and select the IFO file in there.
The 'Input Settings' dialog should now open up. Make sure the 'Index' dropdown box is set to the correct track, that being the track with the time that is the same as the movie's length.
Then copy all the settings off the following picture except for 'Index' which you just set:
If you use PAL TV encoding where you live, set 'Output Frame Rate' to 25 (PAL) and tick 'Force 24Hz'. If you use NTSC, pick your appropriate NTSC framerate and untick 'Force 24Hz'.
If you want to use subtitles, select the appropriate subtitle track from 'Subtitle'. Unfortunately you will have to guess which one if you do not know which track it is.
You have finished setting the Input Settings so press OK to close it and save those settings. DVDx will now load in the movie.
Now is the time you can detect whether your rip is going to work or not. See the counter in the bottom right corner of the dialog? That should read 00:00:01 01. If it reads anything higher than that, then your rip is stuffed. If its stuffed just delete it, and skip to 'Encoding Directly Off the DVD'.
Encoding Directly Off the DVD
You have decided you do not want to rip the DVD and you want to encode directly off the DVD, or your rip was stuffed.
Make sure you have your DVD in the drive and the movie has been opened and paused in your DVD Video player. Go 'File' in DVDx then 'Open DVD Root'. If a Browse for Folder dialog comes up, navigate to the DVD drive with the DVD in it, then open the folder VIDEO_TS.
A 'Select Title' dialog pops up. Select the title that's time is the same as the length of the movie you are trying to rip. This title is your movie.
The 'Input Settings' dialog should now open up. Make sure the 'Index' dropdown box is set to the correct track, that being the track with the time that is the same as the movie's length.
Then copy all the settings off the following picture except for 'Index' which you just set:
If you use PAL TV encoding where you live, set 'Output Frame Rate' to 25 (PAL) and tick 'Force 24Hz'. If you use NTSC, pick your appropriate NTSC framerate and untick 'Force 24Hz'.
If you want to use subtitles, select the appropriate subtitle track from 'Subtitle'. Unfortunately you will have to guess which one if you do not know which track it is.
You have finished setting the Input Settings so press OK to close it and save those settings. DVDx will now load in the movie.
Unfortunately, this method is not free from bugs either. Look at the counter in the bottom right corner of the dialog. That should read 00:00:01 01. If it reads anything higher than that, then your DVD cannot be encoded. For some reason it just won't, and I am not sure why. Luckily this is extremely rare and will probably never happen to you anyway. If it does, never fear, you have the original DVD anyway, just no backup.
Since VCDs are burned on CD media, there isn't much space to store the video. So most VCDs are split across two CDs, some across three or even four 4. Of course you do not want to split the video right where someone is speaking, so at this point I usually cheat; I assume that the chaptering on the DVD is done correctly and not in the middle of someone speaking then cut the video at a chapter change.
Open the 'Settings' then 'Output Settings' dialog. This dialog controls the format of the reencoded movie and the quality. Copy the settings from the screenshot below:
Click the 'Whole' button so DVDx can get the number of frames so it can calculate the estimated size. Now adjust the Video Bitrate up and down until you get the estimated size close to 1600MB as you can, but never over 1600MB. Where did I get 1600MB from. Well, you can fit an 800MB MPEG-1 file on a CD (don't ask me how when the CD is 700MB) and since most VCDs are two CDs then 800x2=1600. Of course if you video bitrate is too low then your VCD's quality will suck. A good bitrate is 1700+ but even 1600 is okay. If 
your bitrate is too low, just split the VCD across three CDs: 800x3=2200MB estimated size.
Now its time to split the VCD into the number of CDs you want. Click 'Settings' (make sure the dropdown next to it is set to Custom Chapter). The dialog that opens lists all the chapters in the DVD.
Now starting with Chapter 1 select chapters consecutively, until the selected size is as close to 800MB as possible but never over. Then click 'Create volume'. This adds a volume to the Summary box. A volume is one VCD. Then 'Unselect All' and continue selecting from where you stopped until it gets as close to 800MB as possible (but never over) then click 'Create volume'. Another volume is created in Summary and this is your second CD.
Once you have finished putting all the chapters in their respective volumes, you can press 'Close' then 'Apply' on the Output Settings dialog.
You have successfully set up the reencoding of the VCD. Now you just need to tell DVDx where to put the reencoded files, then start the encoding. So go 'File' then 'Select Destination' and pick and name and place to save the file. Now click the 'Encode' button in the toolbar. This starts the encoding process, which will take hours.
Once the encoding process is finished a window will appear reporting any errors, which you should disregard.
Now the VCD is ready for chaptering.