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Lossless means that in the compression of a file, all of the original data, every single bit, can be recovered when the file is uncompressed. This is different than lossy compression where some data is permanently deleted so that when uncompressed, all of the original data can not be exactly recovered. Lossy is generally used for video and sound, where a certain amount of information loss will not be detected by most users or the playback hardware does not reproduce it anyway – it is a trade-off between file size and image/sound quality. The files created will be more than 10 times larger than usual. Most players will not be able to decode lossless as the bitrate will overwhelm the device.
For x264 lossless compression to work, the only color model allowed here is yuv420p. Any other specification will be converted to yuv420p and the data will be modified. Also, keep in mind that the YUV color model has to be converted to RGB, which also modifies the data.
To use x264 lossless rendering – choose File format of ffmpeg, m2ts in the Render window. Click on the Video wrench, which brings up the Video Preset window and scroll down in the Compression filebox and choose lossless.m2ts. Preset=medium is the default, but can be varied from ultrafast (least amount of compression, but biggest file size) to veryslow (most amount of compression, but still HUGE) in the parameter box where you see qp = 0. This option is also available for bluray creation.