I still remember the days when downloading movies was only practical because someone had compressed them down to two 150-megabyte videos. When I got my first 'high quality' 580-megabyte copy of The Matrix, I was thrilled.
Encoding used to be an art form. Now people just use whatever codec they want with default settings to get that 50GB Blu-ray movie down to a couple gigabytes and call it a day.
Using a standard means that I can take a video I encoded with an off-the-shelf tool and play it on any device.
And of course you had to get the encoding settings right before encoding the whole thing, since the moment a VCD was public there were several groups all working to get the first decent quality small video file out there.
Regarding the other thing, MPEG is running two tracks for a royalty-free spec based on existing patent-free tech and on grants from H.264 patent holders (respectively) which they say they will decide on sometime this year. An option like that from MPEG might not take off but can't hurt.
Double track on licensing makes some sense for a profile that can be served or provided free but I expect the efficiency benefits would mean that for commercial uses you would pay. That would mean that most hardware will support both so really I think most decodes will support both.
Maybe people will use the non free for mobile.
EDIT: I mean to say, H.264 implementations (particularly x264) are way, way, way out in front of VP8, so even as the H.264 standard is better, the actual facts on the ground are even more so. The only reason to use VP8 (and let me be clear: I think this is a perfectly legitimate reason) is political.