One of the +5 comments:
MPEG4 _was_ initially intended for very low bitrate applications. And indeed, if bitrate is not an issue, then MPEG2 can (and generally will) produce output that is indistinguishable from the source.
However, a lot of the features included in MPEG4 make it equivilent to MPEG2 in quality potential. It would be proper to think of MPEG4 as MPEG2 with a bunch of extra options. If you turn the options off, then you can expect very similar results. Since people generally are using MPEG4 to generate medium-quality (say, around SVHS) video at low (yes, 3 hours of video on 2 CDs is _low_ bitrate), most implementations are much more aggressive about allocating bits than most MPEG2 implementations are. Indeed, at the target bitrates people are choosing, most MPEG2 implementations will utterly fall apart (although MPEG2 itself ought to hold up better than actual performance would suggest).
Among the key new features of MPEG4 are:
1) QPel - MPEG2 allows you to say that a block in a frame is the same as a previous (or future) frame shifted by x pixels, or x.5 pixels, or is kinda like this block and kinda like this other block. MPEG4 extends this to quarters, rather than halves. This is supposed to really help very low motion, or small variations in globally compensated motion.
2) Global motion compensation - MPEG4 allows you to say that the whole frame is panning/sweeping so-and-so much, and then make localized offsets. Actually, IIRC, it lets you make "global" statements at the object level, which leads to...
3) Object-based decomposition - consider a video scene. You have a background, and several "objects" in the foreground. In theory, it would be nice to encode the background with low-motion assumptions (or constant panning assumptions), and the foreground with higher-motion assumptions. Additionally, picking out the different objects in traditional cel-style animation should let MPEG4 totally kick-ass in compressing animation. In practice, all of the techniques for separating out objects automatically suck royally (how you identify objects is not a matter of the spec, the spec just says that if you've separated out, you can handle them individually and paste them together later). This is MPEG4's biggest unrealized potential. The first implementation with good object decomposition should be a huge improvement over all past attempts at video compression. OTOH, don't hold your breath waiting for good object decomposition--it's a "hard" problem, as in computer-vision hard. Developing even half-way decent object decomposition ought to be good for at least 3 or 4 PhD theses.
4) MPEG4 is looser. Just in general it leaves more things up to the encoder, such as what quantization tables to use, letting you vary q-levels more drastically, etc. Also, IIRC, MPEG2 only allows for certain fixed ratios of B-frames and P-frames. MPEG4 loosens these restrictions (all the way?) to allow much greater use on B and P-frames. These frames (especially B-frames) tend to be very compressable, although there are signifigent CPU-usage tradeoffs involved. If nothing else, MPEG2 implementations will almost never let more than 8 frames go by without an I-frame, regardless of whether the spec allows more or not.
5) MPEG4 includes a wavelet-based transform for certain elements. I don't believe that anybody actually uses it for anything, but it is in the spec.
6) Not a spec difference, but in practice, only MPEG4 uses 2-pass encoding. MPEG2 is heavily used for live stuff (well, 3 seconds delay for the censors plus a second for motion comp), and 2-pass is not an option. 2-pass has been implemented in MPEG2 (indeed, the first work with 2-pass was done with MPEG2), but the idea is relatively new. So most MPEG2 implementations don't do 2-pass, and never will, since all the new development effort is going into MPEG4. Many/most MPEG4 implementations include 2-pass since it lets the coder be much smarter about bitrate allocation, and it is a known technique.
That just about sums up the major differences between MPEG2 and MPEG4. Oh yeah, and MPEG4's number is 2 higher :)
