Video can be stored on a DVD in any one of four ways:
Standard, which has a ratio of 4 to 3, widescreen, with a ratio of 16 to 9;
Letterbox, which uses a 16 to 9 ratio but displays in a standard size screen;
"Pan & scan", which crops parts of the display out of the visible image in order to fit into a standard size display. Video stored in 4:3 (standard) format is not changed by the player.
Letterbox video is shown in its theatrical aspect ratio. Since the viewing area is wider than standard TV, black bars are added to the top and bottom (60 lines each for NTSC, 72 for PAL). This creates a shorter but wider rectangle. In order to fit this shorter rectangle, the picture is squeezed vertically, using a letterbox filter that combines every 4 lines into 3. This compensates for the squeeze, allowing in the title to be shown full width.
For widescreen display, the size of the display window is resized to match the DVD title's ratio, or the actual TV set is built using the widescreen size ratio. If the title is being shown on a widescreen TV, no letterbox bars are displayed. Anamorphic (16:9) video can be displayed on widescreen equipment, which stretches the video back out to its original width.
Pan & scan means the smaller TV "window" is panned and zoomed around the wider movie picture, chopping off the sides. For automatic pan & scan mode, the video is unsqueezed to 16:9. A portion of the image is shown at full height on a standard 4:3 screen by following a "center of interest". This view is encoded in the video. All formatting done to the video prior to it being stored on the disc is transparent to the player. It merely reproduces the signal in standard form.
The pan & scan "window" is 75% of the full width, which reduces the horizontal pixels from 720 to 540. The pan & scan window can only travel laterally. This does not duplicate a true pan & scan process in which the window can also travel up and down and zoom in and out. Therefore, many DVD producers choose to put a separate pan & scan version on the disc in addition to the widescreen version.