When it comes to movie theatres, anamorphic movies are compressed horizontally. This allows a wide image (up to 2.40:1) to be stored on a standard (1.33:1) frame; however, when you view a raw anamorphic image that has not been expanded horizontally, people look thin and anorexic and circles look like tall ovals. Such a movie is then projected onto the movie screen with a special lens that expands the movie out to its original width on the screen.
So the image is squashed horizontally using a special lense to go from widescreen to regular. When projected it is then unsquashed using another special lense from regular back out to wide. Am I correct in thinking because this is done optically, information is not lost??
Now, Anamorphic DVD:
When it comes to DVDs, anamorphic DVDs are specially encoded to include more visual information than standard DVDs.
Between a 4:3 Letterboxed Movie, and a 16:9 FHA Movie yes this is true.
When an anamorphic DVD is played on a standard 4:3 TV, every fourth line of this extra resolution is ignored.
No problems, but let's ignore 4:3 Letterboxing from now on...
When an anamorphic DVD is played on a regular TV and your DVD player is set for a 16:9 TV, that extra information is restored; however, because that image is meant to be stretched by a 16:9 TV, the result will be that people look thin and anorexic and circles look like tall ovals. Now you can see where these DVDs get the term "anamorphic DVDs".
Ok, so both film and DVD horizontally squash the picture so as to make the most of the regular frame - the only difference with film is that the image can be anamorphically squashed all the way to 2.40:1, whereas DVD is limited to 1.78:1 only.
Both of these share the term "anamorphic" because if you look at the raw image (before horizontal expansion), people will look anorexic, circles will look like tall ovals, and squares will look like tall rectangles.