Your best copy should really be your Mini DV tape, it can hold much more video at a higher quality than any other removable media type. Since Mini DV tapes are so cheap, once you’re finished with one, make your DVD from it and then store the mini DV tape (sealed) properly. Don't continually use your Mini DV tapes unless your prone to shooting 'throw away' footage, i.e. your daughters wedding should most certainly not be sent to dvd and then the Mini DV tape re-used (unless of course there are lots of short scenes which can be captured and separated so you have a high quality, individual copy of each scene) call me pedantic if you wish :-)
The obvious choice for a file format is an avi file however you may well have noticed that an hours worth of Mini DV tape can result in a whopping 12-13 gigabyte file which after a few video sessions will soon fill up even the biggest hard drives. The obvious choice would be to capture in avi file format (providing you have the space) and then use something like Sonic MYDVD or Nero (Pinnacle will have the same options) to compress the video automatically into an mpeg which is then burned to a DVD. This method by it's very nature means you lose quality but not so much that's noticeable to the human eye, if anything.
To answer your last question, DVD video files are essentially MPEG files, which (once upon a time) were difficult for the home user to edit in that few home editing packages supported the .vob file format, nowadays most do so it isn't worth worrying about. The conversion side of things is even easier, there are a plethora of programs willing to convert the footage to almost any other format providing your willing to pay a small fee, or if you have the time to invest in a freeware program to learn how it works then it's just as easy when you know how.
Hope that makes sense.