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If you want to know specifically what those two terms mean, I'd recommend you post to the Community forum at http://Muvipix.com. There are a couple of people there who know tech stuff like this inside and out.
As for which decisions to make, for playing video on your computer you're best with single pass and no interlacing.
Let's look at the 1-pass vs 2-pass Encoding.
When one sets the general parameters for Encoding and chooses 1-pass, the parameters are applied over the entire Timeline. This is the quickest method for Encoding and will be pretty good, based on the chosen parameters.
With 2-pass, the Encoding program will first look at the footage, in the scheme of the chosen parameters, but while doing so, will look for faster motion (both camera and subject) in the Timeline. Where it finds the motion, it will mark it for the highest setting in the parameters. The highest settings will be applied to the sections with the most motion, and the "average" will be applied to the rest. This yields a better Encoded file, especially where there is motion. This Encoding method takes longer, as the Encoder must look at all of the footage first to decide what to do, and then to apply the Encoding parameters.
The Encoders used by Hollywood, are usually at least 9-pass, and often quite a bit more. They are also run by experts, who do nothing but Encode all day, and are highly-paid for their work and their expertise. This is why the high motion footage in a commercial DVD will look smoother, than what we can accomplish, and the file will likely even be smaller. Those Encoding programs cost hundreds of thousands of $, so it's not like we could download one and use it, even if we were experts and could figure out the settings.
So to wrap up, a good Encoding engine will likely do a fair job when set to 1-pass, but especially with higher motion footage, likely a better job with 2-pass, and the only cost is time. Unless I am trying to Encode a quick reference file, I will always use multi-pass schemes, to get the best possible output, and just have a cup, or two, of coffee, while I wait. Also, there are better Encoders, than the ones included in our NLE's and authoring programs. Grass Valley's ProCoder is one that gets really high marks - this side of Hollywood.