Gmail Labs tab under Settings, turn on "Video chat enhancements," and right away, you'll see higher resolution video and a bigger video chat window.
The higher resolution video uses a new playback mechanism which enables widescreen VGA and frees up valuable resources on your computer. For it to work, both you and the person you're chatting with will need to have the lab turned on. Remember that you can always revert to standard video chat by disabling the lab.
We plan to add more video chat enhancements to this lab in the future, so if you have it on you'll automatically get those too. Feel free to post your comments or report any issues you encounter in the video chat forum (we also follow #googlevideochat on Twitter).
-- source --
Gmail Blog: http://gmailblog.blogspot.com/2010/09/new-in-labs-video-chat-enhancements.html