Why does quality degrade so much if just cutting video with ffmpeg? I have tried to cut video with the following command

ffmpeg -i "Вспомнить все (Total Recall, 1990).avi"  -ss 01:07:29 -to 01:08:05 fight.avi


Output:

Input #0, avi, from '╨Т╤Б╨┐╨╛╨╝╨╜╨╕╤В╤М ╨▓╤Б╨╡ (Total Recall, 1990).avi':
  Metadata:
    encoder         : VirtualDubMod 1.5.10.2 (build 2540/release)
    artist          : Menen
  Duration: 01:53:33.69, start: 0.000000, bitrate: 3660 kb/s
    Stream #0:0: Video: mpeg4 (Advanced Simple Profile) (XVID / 0x44495658), yuv420p, 704x384 [SAR 1:1 DAR 11:6], 2295 kb/s, 23.98 fps, 23.98 tbr, 23.
98 tbn, 23.98 tbc
    Stream #0:1: Audio: ac3 ([0] [0][0] / 0x2000), 48000 Hz, 5.1(side), fltp, 448 kb/s
    Stream #0:2: Audio: ac3 ([0] [0][0] / 0x2000), 48000 Hz, 5.1(side), fltp, 448 kb/s
    Stream #0:3: Audio: ac3 ([0] [0][0] / 0x2000), 48000 Hz, 5.1(side), fltp, 448 kb/s
File 'fight.avi' already exists. Overwrite ? [y/N] y
Output #0, avi, to 'fight.avi':
  Metadata:
    IART            : Menen
    ISFT            : Lavf55.43.100
    Stream #0:0: Video: mpeg4 (FMP4 / 0x34504D46), yuv420p, 704x384 [SAR 1:1 DAR 11:6], q=2-31, 200 kb/s, 23.98 fps, 23.98 tbn, 23.98 tbc
    Metadata:
      encoder         : Lavc55.67.100 mpeg4
    Stream #0:1: Audio: mp3 (libmp3lame) (U[0][0][0] / 0x0055), 48000 Hz, stereo, fltp
    Metadata:
      encoder         : Lavc55.67.100 libmp3lame
Stream mapping:
  Stream #0:0 -&gt; #0:0 (mpeg4 (native) -&gt; mpeg4 (native))
  Stream #0:1 -&gt; #0:1 (ac3 (native) -&gt; mp3 (libmp3lame))
Press [q] to stop, [?] for help
frame=  863 fps= 20 q=31.0 Lsize=    2690kB time=00:00:36.00 bitrate= 612.1kbits/s
video:2061kB audio:563kB subtitle:0kB other streams:0kB global headers:0kB muxing overhead: 2.500957%


The resulting video has obviously worse quality, with apparent big MPEG squares visible


                
            

Why?

How to avoid?

UPDATE

Even if re-encoding, then why so drastical change? Can we re-encode so that it will be nearly invisible degrading of quality?

UPDATE 2

I guess if I use -codec copy then I will be unable to cut at precise moment. Moment precision is a priority. So I agree with quality loss but it should not be so drastical.
Re-muxing only

Use stream copy mode to just re-mux instead of re-encode:

ffmpeg -ss 01:07:29 -i input -codec copy -map 0 -to 01:08:05 fight.avi



Using -ss as an input option can be faster than using it as an output option, but it may not be as accurate.
-codec copy will stream copy (no re-encoding). Default behavior, if -codec copy is omitted, is to re-encode, and as you've noticed the default encoding settings for most encoders are not optimal (they used to be a decade ago).
Default stream selection is to select only one stream per stream type (video, audio, subtitles, data, etc). -map 0 will ensure all streams are copied in case there are multiples of each type. That being said, your input only has two different streams, so it is actually not needed here.
Development of ffmpeg is very active, so it is important to use a recent build if possible. See the FFmpeg Download page for several options.




If you must re-encode

-crf

You can target a "visually lossless" quality level using the encoder libx264 with the -crf option. CRF is just about as close as you can get to a "constant quality" option: 0 is lossless (but usually results in huge files), ~18 is usually considered to be visually lossless or nearly so, 23 is the default, and 51 is worst.

-preset

The encoding speed to compression (quality per file size) ratio. Basically use the slowest preset you have patience for: ultrafast, superfast, veryfast, faster, fast, medium, slow, slower, veryslow.

ffmpeg -i input -codec:v libx264 -crf 23 -preset medium -ss 01:07:29 -to 01:08:05 output




Also see


FFmpeg H.264 Encoding Guide
Seeking with FFmpeg