Taken directly from the Microsoft website at http://www.microsoft.com/windowsxp/using/moviemaker/getstarted/clips.mspx - visit this site for full instructions and screenshots
When you download video from your camera to your computer, Windows Movie Maker splits your video (which might be a full hour long) into shorter clips that are easier to work with, and then adds the clips to a collection. Each time you stopped or paused recording with your video camera, Movie Maker created a separate clip.
If you notice that Movie Maker did not break your video into clips, you might have cleared the Create clips for video files option, which is selected by default. Follow the steps in Create video clips to divide your movie into smaller clips.
Once you have divided your video into clips, you can immediately drag the clips from the collection to your storyboard to create a movie. Then you should trim the video clips to show only the most important moments. Follow the steps in Trim video clips to learn how to shorten clips on your storyboard.
Clips are automatically created if you select the Create clips for video files check box when you import a video file into Movie Maker. If the check box is not selected, the video is imported as a single continuous clip, rather than as a series of shorter clips. Don’t worry; you can use the Movie Maker clip detection feature to divide a video file into smaller, more manageable clips.
To import a video file that you have already saved to your computer and automatically create short clips
When you watch your video clips, you might notice that the camera tends to shake at the beginning and end of each clip. That’s because you’re pressing the record or stop button on your camera. Don’t worry - nobody can hold the camera perfectly steady while they start and stop recording.
Fortunately, you can fix the problem with Movie Maker by trimming the beginnings and ends of clips. In fact, you can trim clips down to just a few seconds each - that’s the best way to make a fun, fast-paced movie. You can choose to either trim clips in your collection or trim clips on your storyboard. You should trim clips in your collection if you plan to use the shortened clip in other movies. For information about how to trim clips in your collection, read How to work with collections.
If you don’t want to change the clips in your collection, you can trim them while they are on your storyboard.
