In most video sequences there is a little change in the contents of image from one frame to the next.

Most video compression schemes take advantage of this redundancy by using the previous frame to generate a prediction of current frame.

It removes temporal redundancy by attempting to predict the frame to be coded from previous frame.

This is based on current value to predict next value and code their difference called as prediction error.

Motion compensation assumes that current picture is some translation of previous frame.

The frame to be compared is split in to blocks first and then best matching block is searched.

Each block uses previous picture for estimating prediction.

This search process is called as prediction.

By reducing temporal redundancy, P-pictures offer increased compression compared to I-pictures.

Motion Estimation is to predict a block of pixel value in next picture using a block in current picture. The location difference between these blocks is called Motion Vector. And the difference between two blocks is called prediction error.

In MPEG-1, encoder must calculate the motion vector and prediction error. When decoder obtains this information, it can use this information and current picture to reconstruct the next picture. We usually call this process as Motion Compensation.