This is more involved than many people think, if you just plan on doing one or two, you may want to use a commercial service for it.
You need a device that can capture the video in your PC when you are playing it.
ATI All-In-Wonder cards can to that , but there are also several cards that plug into a PCI slot or USB devices such as dazzle that will let you capture composite output.
Once you have captured it , you want to use software such as Pinnacle to edit it and and add menus and chapters.
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