The quality of image is determined in a couple of areas -

When you start a new project, the Capture Settings window opens.  Go to the Video camera/webcam option and make sure you have adjusted the size to a reasonable level - at least 640 x 480.  800 x 600 is better, if you camera goes that far.

Now, film your animation.

When you are finished, go to the File > make movie option.  Make sure the Height and Width match your camera selection in the capture settings window (it should be by default)

Select AVI , WMV or MOV with compression for the video.

Export the clip - how does that look?

We recommend Quicktime MOV files are best compressed with H264.