How do I shrink an mpeg file?

I used WinAVI to convert a 699mb avi file to mpeg, but instead of allowing it to fit onto a 700mb cd, the completed file is a little over 1Gb. I chose the VCD option before encoding, but I don't understand why it won't fit onto a cd. What am I doing wrong, and how do I shrink it to fit onto a cd? Thanks.