Smallest possible file size that is watchable...

I read the "Fitting an entire movie in 20mb" guide and had a question. Everyone has said that an average movie would be about 125 megs for full length. If you could fit a movie in 20megs, is the sound and video quality absolutely horrible and unwatchable? I don't see how you can get from 125 megs down to 20 megs per movie...