Transcoding is the direct digital-to-digital conversion from one (usually lossy) codec to another. It involves decoding/decompressing the original data to a raw intermediate format (i.e. PCM for audio or YUV for video), in a way that mimics standard playback of the lossy content, and then re-encoding this into the target format.
Transcoding can also refer to recompressing files to a lower bitrate without changing formats.
Compression artifacts are cumulative, therefore transcoding between lossy codecs causes a progressive loss of quality with each successive generation. For this reason, it is generally discouraged unless unavoidable. For instance, if an individual owns a digital audio player that does not support a particular format (i.e. Apple iPod and Ogg Vorbis), then the only way for the owner to use content encoded in that format is to transcode it to a supported format. It is better to retain a copy in a lossless format (such as TTA, FLAC or WavPack), then encode directly from the lossless source file to the lossy formats required.
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