Since 1955, most movies were (and are) filmed in a process where the width of the visual frame is between 1.85 to 2.4 times greater than the height. This means that for every inch of visual height, the frame as projected on the screen is between 1.85 to 2.4 times as wide. This results in a panoramic view that when used properly can add a greater breadth and perception of the environment and mood of a movie.
This formula is called an "aspect ratio". A movie that is 1.85 times wider than it is high has an aspect ratio of 1.85:1. Similarly, a movie that is 2.35 times wider than it is high has an aspect ratio of 2.35:1.
Modern televisions come in two aspect ratios - 1.33:1 (or 4:3), which has been the standard since television became popular, or 1.77:1 (more commonly known as 16:9), which is quickly becoming the new standard. However, neither of these aspect ratios are as wide as the vast majority of modern movies, most of which are either 1.85:1 or 2.35:1.
During the 1980s TV screens became larger and home video became a dominating force for home entertainment. The desire to see movies in their original aspect ratio by both movie buffs and movie makers became evident when laserdiscs were released. The sharper resolution of laserdisc, and its acceptance by movie purists as opposed to the average user who preferred videotape, made widescreen viewing highly desireable. As a result, the vast majority of laserdiscs were shown in a "letterbox" or "widescreen" format in which a movie can be seen on a TV screen with the intended width, and therefore the complete visuals, intact.
"When you watch a movie on your television screen, you're not necessarily seeing it the way it was originally intended. As a director, when I set up a shot and say that there are two people in the frame, with the wide screen I can hold both with one person on each end of the frame. When that shot is condensed to fit on your TV tube, you can't hold both [actors]..and the intent of the scene is sometimes changed as a result."
-- Leonard Nimoy, Commentary for the Director's Edition of Star Trek IV: The Voyage Home
Because a "wide" movie cannot fit cleanly onto a 4:3 or 16:9 TV and because of the increasing demand for movies on videotape, most movies were (and are) modified so that they can fit on the TV screen by using a modified aspect ratio (or MAR), usually modified to fit 4:3 TVs because that is still the dominant aspect ratio. Movies with aspect ratios of 2.35:1 are subjected to having about 45% of the visuals removed from the screen so that the TV screen would be full. This is done by a process called "pan and scan" which focuses on one section of the frame.
As a result, many movies lose vital information that is often lost through the pan-and-scan process. In some cases, crucial plot information is lost. This methodology can also result in jerky movement across the frame, very fast scene changes that disrupt the flow of the movie, or the "talking noses" syndrome where two actors on either end of the frame only have the forward part of their profiles on the screen.
Regardless of the specific results, the overall result is that the movie is losing up to 45% of its original visuals.
The widescreen or letterbox process takes the entire frame and reduces the size in proportion so that the entire frame fits within the width of the TV. This allows the movie to be seen in its original aspect ratio as the film makers intended the movie to be seen.
"With pan and scan, as much as 50 percent of the original picture is lost. It's simple math, folks, something has got to go. And sometimes what is lost is very important. Now how about this scene from The Graduate. Where have you gone Mrs. Robinson? You've been panned and scanned right out of the scene." -- Jack Lemmon
The widescreen process also results in what are incorrectly referred to as "black bars" at the top and bottom of the screen. In reality, these "black bars" are actually unused areas of the screen. The areas are black to allow for better contrast.
Although those "black bars" might seem as though you are losing information, the truth of the matter is that the widescreen process actually allows you to see more of the frame - not less. Yes, you have a smaller visual portion, but you are seeing the movie the way that you saw it in theatres, which is almost always the way that film makers want the movie to be seen.