Screen2EXE is a capable tool which records desktop activity, allows you to edit it in many ways, then saves the results as AVI/ MP4 videos, or a self-playing EXE file.
Setting up a recording session is easy. Click and drag with the mouse to define the capture area; choose the frame rate you need (1/ 2/ 4 fps, or as fast as possible); check a box if you'd also like to include audio, and click "Start Recording". Then simply launch programs, browse dialog boxes, play streaming video, or do whatever else it is you'd like to record.
Press F10 when you've finished, and Screen2EXE opens the recording in its editor. Here you can customise the video with text captions, images and more. Options to zoom in on a particular area, or mask the rest of the screen, help to direct your viewers attention. And you're able to fine-tune the recording by cutting out unwanted sections, removing frames you don't need, perhaps adding delays to others.
A preview window means you're able to check your progress at any point, and once you're happy the finished movie can be exported as videos (FLV, MP4, RM, AVI) or a self-playing EXE. The "Save" dialog gives you control over the video resolution and number of colours (best, 16-bit, 4096 colours, 256, greyscale), and we found the program typically produced extremely small files.
Please note, the developers also produce a commercial edition of the program, Screen2SWF. As you'll guess from the name, it's essentially the same product, with an additional option to save your video as a Flash movie. It's yours for $49.