The problem stems from the way TV's and computers work.
TV's like that you may have connected to the VCR(if it is a CRT) will only refresh every second line per frame. Computers do not work this way and you may see lots of artifacts(they can look like lines or blurring on motion from side to side) as a result.
This said, a CRT TV is an interlaced device(well most are) and works in this way very well. This means videos will look sharper on that screen. The TV also has a lower resolution in most cases, while this sounds like a bad thing, it is a very good match to the video type being played. The computer and even LCD TV's have to upscale the image to make it fill in all that extra resolution.
I will try to cover some basics
The capture device it self
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Most USB capture devices rely on the cpu to "De-interlace" and compress this video feed. I find this to be a very hit and miss thing(removing the lines, but still being rather blurry).
There are cards out that are Hardware capture cards(mostly internal, but some are external, mostly noticeable by the fact that they need a power source that is not the usb port), this kind of card does all the work(it has its own cpu onboard) and offers far better image quality. The image is still interlaced, but it is done is such a way that your playback software will make it look good. DVD's are interlaced as well.
The source
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I know the source looks good, but once again i am going to say it is the relation between the source VHS and the TV it self that make it look so good.
Recommendation?
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I recommend a good hardware encoder for the job, it will look better and can filter out noise(but analog noise was not like digital noise and i found it less annoying to begin with).
An HD card is not needed as the source will not be HD, but most HD cards have a hardware encoder onboard(but NOT stick type tuners.).
Also, it is best to always use the BEST output from the VCR to the pc, so if you have s-video and the capture card has it, go that route.
Failing this, capture and burn a test DVD to try on your TV, it may look better then on the computer...Once again, older TV's are very well suited to the lower resolution images.