HandBrake's main form of input is ripped DVDs that you have stored as VIDEO_TS folders or .iso images on your hard drive. It can also read directly from some DVDs, right from your computer's optical drive.
It also has limited support for some .vob, .ts, .m2t, and .mpg files. These include television broadcasts captured with an EyeTV or HDHomeRun.
HandBrake, however, does expect that all MPEG-2 streams are set up like a DVD (with 2048 byte blocks) and are properly formed, so don't expect it to read everything.
HandBrake will not accept videos that have already been encoded by another source. This includes .avi video files you may have downloaded, files from Google Video, etc.. For help with such sources, you might wish to look at: ffmpegX (OS X), MeGUI (Win), or MEncoder (guide)(linux and cross-platform)