I found this article while researching what you are describing called iTunes: May be unable to transfer videos to iPhone, iPad, or iPod found here http://support.apple.com/kb/TS1497?viewlocale=en_US
This section in particular:
Other video sources
If you did not purchase videos from the iTunes Store, they may not be in a format that you can play on your iPhone/iPod. In many cases, you can convert them to the correct format using iTunes or QuickTime.
- Using iTunes: Select a video and choose Advanced > Create iPod or iPhone Version
The iPod Classic does not support high definition video: http://support.apple.com/kb/SP572
If it is available, you can download the standard definition version of the movie to sync to your iPod Classic. However since movies and TV shows purchased from the iTunes Store (this includes all "digital copies" as well) are restricted by DRM they can not be converted.