DVD Rebuilder does require DVD encoding software. CCE is of course great but it does work with QuEnc and HC Encoder which are free and available on DVD Rebuilder's site.
From Doom9.org:
Recently, compressed domain transcoders have reached quite some popularity. These transcoders are based on algorithms designed to recompress an MPEG-2 stream in real-time for TV broadcast. These programs can transcode an entire DVD movie in only a few minutes, because they do not have to decode and re-encode the entire video stream, but only part of it. I will not go into a detailed explanation of the mechanisms used as they are quite involved but basically what you get is a size (and hence quality) reduction per time unit that cannot be rivaled by regular MPEG-2 encoders (though the latter category can yield better quality). DVD2One was the first program to be based on these principles, now DVD Shrink is the first free program to offer this functionality.