Sorry for not providing a more complete description.
The goal is to give Encore a file it does not need to transcode. So the goal is to do only one lossy compression (and yes, that is MPEG2). One workflow is to export a lossless intermediate file, and transcode that into the MPEG2, using Encore or some application. There are a variety of tools, and opinions, on what makes the absolute best quality.
I did not mention it above, but when you or clients are watching DVDs on HD TVs, you want to be sure the player does the upscaling. (Try of most bluray players.) That will show you the best quality on a larger TV.