x264 is a video codec developed by a group of open source developers. Contrary to what most people believe, the x264 codec is only free for noncommercial use. Both Episode and Squeeze use a commercial form of this codec. Therefore they are required to license the codec, and obviously they charge you the money for it.
In Squeeze 8.5 the x264 codec is part of an upgrade, for which you pay. It’s not said explicitly, but the upgrade price includes the codec’s commercial license. Telestream takes a different approach and allows you to download the x264 codec from their websites as an add-on to Episode. For this add-on they charge you a small fee.
The advantage of having x264 as an integrated codec in either one of these applications instead of using the QuickTime version (which is free) is that you can set all parameters for this codec in the host application. There are a lot more parameters that you can set in Squeeze and Episode than there are available in the QuickTime version.
This obviously is a good thing, at least if you know what you’re doing. Another benefit is that you gain some speed from using the native plug-in as opposed to the QuickTime version.
I tested both the Squeeze x264 and Episode x264 capabilities and found that Squeeze offers a higher quality setting right out of the box, while in Episode to obtain the highest quality at the smallest file size you will need to tune the settings so that the codec has more headroom.
In practice, this means that you will have to set the bitrate to at least 10,000 kb/sec in order to get acceptable results. In other words: the Squeeze engineers opt for larger files but better quality, while the Episode engineers opt for the smallest file size at the cost of pixel blocks, etc.
However, if you set both apps’ codec parameters identically, you’ll also get identical quality.
The crucial difference that remains then is speed, and in this area Squeeze 8.5 Pro was slower than Episode 6.3, but not by much. The conclusion for me is that the advantage you gain by having better settings for x264 out of the box are only of value the first time you use the codec. As Episode allows you to create presets, just like Squeeze, you can easily customize the x264 results and save them as a preset. Next time, your encoding will be faster than Squeeze’s.