Stretch 5/24/04:
I finally got impatient and decided to go find the answer to my own question. Terms like "Hardsubbing" or "Hardsubs" were turning up occasionally in anime reviews I would read from various websites, and I was wondering what they meant. At a website called "Lazy Man's Guide to MKV" (whatever that is) I found the following definition:
"The average anime digisub uses SSA subs as well, but they are "hardsubbed". This means the subtitles are part of the image, and these subs are permanent. Hardsubs cannot switch languages or disable subtitles. Also, hardsubs use more bits than softsubs because the subtitles must be encoded with the image. The saved bits used in a softsub allow the video image to be clearer and crisper"
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Devil Doll 2004-11-18:
Standard AVI video containers (Microsoft Audio/Video) can only hold hardsubs because they can only hold one video stream and a number of audio streams. That's why AVI files must contain hardsubs where the subtitles are hard-coded into the video stream.
But there are more modern and better container formats, such as Ogg Media (OGM) and Matroska (MKV) that can hold more and different types of streams, now even including text streams (normally SRT subtitle format but can be Substation Alpha (SSA) as well). In this case you can put a video stream and a subtitle text file into the container and decide whether to use the subtitles when watching the video. You can even have several subtitle files within one container and decide at playing time which of these to use (it may even be more than one at a time, so that one might put footnotes/technical comments into a separate subtitle stream etc.).
Which means that if you have a softsubbed video in one of these modern containers then you can even extract the subtitles and modify them (such as translating them into your own language, without needing to redo all the work of timing).
The downside of these modern containers is that they aren't (yet) supported by stand-alone DVD players (for TV sets without PCs) while the typical AVI files (even including modern video codecs such as DivX5 or Xvid) are fully supported by modern players nowadays.