You have a switch in your switches to convert to MP4 (it handles mpg mpeg flv mov avi divx webm ogg mjpeg wmv 3gp), but you need to install some software and verify settings on your server first:
- PHP's shell_exec function must be enabled. Some shared hosts disable it.
- The upload_max_filesize and max_post_size values in php.ini must be set to something larger than the largest video file size you want to allow people to upload.
- lame must be installed
- ffmpeg must be installed
Ask your web host to do the above for you or give you instructions. Dreamhost has ffmpeg instructions here.
Once you have everything installed you'll be able to convert files to MP4 automatically on upload (when the switch is on). You can control the size of the resulting movies at Admin -> Articles ->Article Settings with the video resolution option there. Note the width and height must be multiples of 2 or ffmpeg will refuse to process it.
You'll find the flow player embed details are already in your default article details template, so you won't need to change anything to get videos playing. You may copy the flow player HTML from the article details template to other places (such as attachment toplists) if you wish. You may also use direct HTML5 video tag embedding without flowplayer if you prefer.
Thumbnails for converted videos work the same as for images (use {ATTACHTHUMBIMAGE}). There's also a full-size preview image available which you can access via {ATTACHFLVPREVIEW}.