AVI is a file extension.
MPEG is a standard.
An AVI file can be compressed with different CODECS (compressor/decompressor), e.g. DivX, Xvid, Indeo, etc.
Blender can usually handle any format if you have the correct CODEC installed. Some people have problems with compressed formats, but they should work. Uncompressed AVI (or AVI raw) can be a huge file. This is more likely to work on any machine until the filesize causes memory problems.
MPEG-1 (really just MPEG) is a standard. There are different CODECS that are compliant with MPEG and will compress a file. The filename is usually: filename.mpg.
A digital video camera usually uses Firewire (or possibly USB) to output the video data. You need software to capture the stream. For a free tool, I would suggest Virtual Dub. For an affordable tool, I would suggest the latest editors from Pinnacle. Once you have the video ‘captured’ you can convert it to any format you want.
For Blender rotoscoping I would suggest saving the video as a series of JPEG stills (most editors have that option, you just have to find it) or uncompressed AVI for simplicity.
Here is a good site for digital video information.