Better video quality
A standard DVD player produces a picture with a basic resolution of 720×480 (NTSC) or 720×576 (PAL). These days most players offer an upscaling function, allowing the player to output a signal with 720 lines or 1080 if interlaced. Even if the player does not upscale, the larger screens have upscaling built in for use with broadcast signals, so will upscale the DVD signal as well. However, upscaling is not perfect, and it is inferior to native higher definition.
Blu-ray stores a full high definition of 1080 lines resolution without upscaling. This is clearly better, but will you notice the difference, and if you do will it matter to you? Before you upgrade your existing kit, you should consider the following. On quite large screens, you may not be able to discern the difference. My screen is 37 inches and at this size, it is hard to confidently discern differences.
If you have a larger screen, then clearly the observed differences will be greater. However, in many living rooms especially in smaller houses in Europe, it may not be possible to get far enough away to optimize your viewing experience. It is suggested that the best distance to view a TV screen is between two and three times the diagonal size of the screen, thus my 37" screen should be viewed at 6ft 2in or 1m 88cm. Whilst some viewers have said that higher quality signals can be viewed as close as 1.5 times the size, it is unlikely to produce the best viewing results which is what we are concerned with.
On the other hand if your room is small and you want a big screen, Blu-ray's higher resolution may enable you to sit closer to the screen comfortably, but you may have to invest in satellite or cable to get high resolution broadcast TV to match.
Other factors to be considered are ambient lighting conditions. In dark conditions, you will be able to discern greater differences than in normal ambient light levels. But equally well, cutting down ambient light may produce a greater improvement in image quality for DVD viewers than a Blu-ray upgrade that does not cut down on ambient light levels.
There are spin off benefits from Blu-ray production for DVD watchers who do not upgrade. Many older DVD releases have been remastered and re-issued for Blu-ray. Consider, for example, the James Bond movie franchise. The first in that series, Dr No, was first released as a DVD with a print which looked, frankly, washed out and came with a mono soundtrack. The latest Blu-ray release is a huge improvement over this DVD release, but the newer DVD release provides perhaps 80-90% of the improvement over the original.
Another spin off benefit is the new development of better enhancement and upscaling technology for DVD players. For example, Toshiba who promoted the rival and now obsolete HD DVD format have produced a DVD with a technology known as XDE to improve the sharpness and resolution of standard DVDs. Whilst no-one is suggesting that it offers the same quality as Blu-ray, it plays standard DVDs and recently an XDE player was seen in the UK for £67 ($100) or under half the cost of an entry level Blu-ray player.