Hey Nick–
Well, because MOI asked the very same question when I started, I got a pretty thorough reply back from John Rofrano and saved it. Here’s what’s pasted from my Vegas cheat sheet:
Project Settings: These are for the human while editing. Vegas (unlike many other NLE’s) will dynamically show you everything as if it all matched the project properties. For example, if you set them to progressive, Vegas will deinterlace any interlaced footage on the timeline on-the-fly to show you what your project would look like as if it were progressive. This is why I usually recommend that your project properties match your render properties because only then will you get true WYSIWYG (What You See Is What You Get). Sometimes you can’t do this because you are rendering to multiple formats. Then I recommend that you set your project to match the format of your source. Having your project match the format of your source has an added advantage that Vegas doesn’t have to convert anything on-the-fly and so playback performance is better.
Even/Media Properties: These MUST be set to match what the media really is. They should only be changed if Vegas interprets your media incorrectly. (e.g., Vegas thinks your media is Upper Field First when it’s really Lower Field First). NEVER set these to something that doesn’t actually match the real media because this is how Vegas knows if it needs to deinterlace or change the field order. (e.g., don’t lie to Vegas and tell it something is progressive when it’s not, the results won’t be pretty). The only exception is if you are using a plug-in that asks you to change these settings. Once such plug-in is BCC UpRez which asks that you set interlaced footage to progressive because UpRez will handle the deinterlacing for you.
Render Properties: These can be anything you want and obviously should reflect your final desired format. This how you turn 16:9 into 4:3 or interlaced into progressive. If you’ve set your project up properly and all of your media is set properly, rendering should never surprise you and always give you what you asked for.
–Kelly