You need either a capture card or something like Dazzle to connect VCR to PC. click here
The captured format is AVI (LARGE files), encode these with something like TMPGEnc click here (which can take several hours depending on CPU speed, file size etc.)
Burn to SVCD or DVD - for this you'll probably need the burner upgrades to burn to either format.
Capture software comes with the capture card of Dazzle