I believe what you're supposed to do is not simply record the footage shown in the demorecord utility with fraps (although that is definitely the simpler way), but rather export the recording into another folder which basically takes screenshots of every single frame in the recording (screenshots don't show the UI), and then reassemble those screenshots with something like Windows Movie Maker to make it an actual video.
The major benefit is that there are settings you can use to increase the render setting so that the screenshots come out looking better than what you could normally get with a recording of a live playthrough. It takes more time to generate these high-render screenshot frames, but you get a much better end result.
I played around with Demorecorder back in the day (over 2 years ago). It kept crashing my system. It looked intense and the little bit I got from it was awesome.
I haven't heard of how to make it take screen shots though.
There was a thread back in the day that had a program to access your recordings. I don't know if its still around and I forgot how to get into the demorecorder once a recording was made.
Anyone have time to sit down and show me how this awesomeness of a feature works?
I also heard back in the day you could use some third party program to load the demorecorder file. Something about 3-D and it can utilize camera points or something. When I checked on it, it wasn't a free program and if my memory serves me correctly, it was expensive.