Sorry if I'm not getting this, but are you saying that MKV is what a blu-ray is already compressed in? (so my transcoding a blu-ray rip to mp4 I'm not losing anything?) Currently I believe I've been using h.264 for all my DVD transcodes, which is then inside an MP4 container. Thanks in advance, the transcoding stuff has always been a little confusing for me.
No. Think of MKV as a bucket. A bucket can hold rocks, or water, or sand...etc. MKV is the bucket. Inside the bucket can be video encoded in MPEG2 (i.e. what DVDs use), MPEG1 (what VCDs use [used]), or more typically MPEG4.
Regarding what compression is used in Blu-ray (I'll summarize from an older post I have on this site): The mt2s file in a Blu-ray can be either a variation of the MPEG2 video stream that was made for BluRay (and other systems as well), or MPEG4. Almost always it will be MPEG4.
So basically, .MP4 and .MKV and .AVI (and.DIVX and .MOV) are all the containers (i.e. buckets) that hold an audio stream, a video stream, and depending on the container (bucket) maybe a subtitle stream and additional audio streams as well. The compression used on the audio stream or video stream (i.e. MPEG2 or MPEG4 for video or MP3 or AAC for audio) is the CODEC.
I'll add that some containers are designed and specified to use only one form of video and audio codec (MP4 notably) but some (i.e. MKV) can use basically anything. Which is why it (MKV) is considered more universal. Plus MKVs can have multiple audio streams whereas the MP4 container can have only one, and MKVs can have embedded subtitle streams as well.
If you're curious (or bored) I get into more detail here: http://homeserversho...2127-handbrake/
What about the audio in MP4? I does it still give you the 5.1 audio or just stereo? I know you can get 5.1 in MKV.
MP4 can take AC3 as an audio codec, so it could have 5.1 (or 7.1) sound HOWEVER the official codec and what is typically used is (again stealing from my older post) AAC. AAC is a more advanced encoding formula than MP3 (MPEG1 Layer 3) or MP2, and it also can be used with surround sound but you are correct in that it typically is used in stereo That is only because most uses of MP4 are designed for personal media players (PMPs) that typically have two speakers at best. Also, I don't know of ay players that output AAC surround via digital out. Only via analog. So it's not a great choice.
As above, one of the reasons I prefer MKV is I can include a stereo audio stream as the priamry stream and a surround stream (even the straight TrueHD or DTS) as a secondary stream. if the player only supports stereo, it will default to the first audio. If it is an HTPC conencted to a surround system, I just choose the second audio. I might even throw in a third audio track for director's comments. Can't do that with MP4 container.
For more info: https://trac.handbra...roundSoundGuide
*edit* I'm apparently somewhat mistaken in my claim that the MP4 can't take multiple audio tracks. It just has not been officially supported, and right now only works with Quicktime capable players and as an .m4v (Apple's version of the .MP4 container.) But I still prefer the MKV if yu're going to go down that route.