Or are chapters designated to start and end on key frames, so the process is lossless?
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AFIK, ripping never involves re-encoding, no matter what portion of the movie you decide to copy. The only thing ripping does is to remove the encryption and some of the VOB elements (e.g., audio channels, subtitles), depending on what options you choose. It can also combine VOBs so you end up with a single file. However, the video is not re-encoded.
If you use something like the old DVD Shrink, and you use its "re-author" mode, that does let you cut the VOB during the rip process, but those cuts are done on GOP boundaries, so there is no re-encoding. A similar thing is done when you extract just a single chapter.
I have not kept track of all software that can be used for ripping, and I suppose that some might let you do frame accurate cuts (which lets you cut on any frame). If such rippers exist, and if they do frame-accurate cuts then yes, for the few frames around the cut, they would have to re-compress, but you'd never see the degradation, since it would go by so quickly, and for the bulk of the video, no re-compression would be done and the resulting video would be precisely identical to the original that was on the DVD.
Last edited by johnmeyer; 15th Oct 2018 at 15:55. Reason: added "the encryption"
Chapters, by definition, must occur on keyframes. If you set one during the encoding, a new keyframe is created there. If you set one during authoring afterwards (as I and most professional authoring houses do), it can only be done on keyframes.