Read Bill Hunt on a file type as WRAPPER http://forums.adobe.com/thread/440037
What is a CODEC... a Primer http://forums.adobe.com/thread/546811
What CODEC is INSIDE that file? http://forums.adobe.com/thread/440037
Report back with the codec details of your file, use the programs below... a screen shot works well to SHOW people what you are doing
If you have a red line over the timeline after importing a video and before adding any effects... your project is wrong for your video... read above about codecs
Once you know exactly what it is you are editing, report back with that information... and your project setting, and if there is a red line above the video in the timeline, which indicates a mismatch between video and project
H.264 will NOT work inside an AVI http://forums.adobe.com/thread/854115
More information needed for someone to help... click these links and provided the requested information
The key is matching your project specs to your video source.
What model of camcorder is your video coming from and what format and resolution is it?
When you started your Premiere Elements project, which project settings did you select? If youv'e selected the ideal project settings, you should see NO red lines above your clips when you add them to your timeline. Is this the case in your project?
Your timeline is most probably not rendered(red linne above timeline)
Either you didn't selected the right project preset for your project(as Steve said), so select the right project preset.
Or you edited your timeline(applied effects,transitions,etc.), this also causes the timeline to become unrendered.
You can render using the ENTER key, after which playback will be smooth.
If you are short of time, then you can just export without manual rendering(and go for your work ), your final output will not be choppy.
If you want to render only small portions of your timeline, set the work bar area(two vertical bars above timeline on the timecode), and then press Enter.
Pressing Enter only renders the current work bar area.