Original video file is 1920 x 1080, 23 fps, approx 24,000 kpbs so a 3 min clip = 430 MB.  This file size is too large and I'd like to put together about 5-6 clips to make a short video.  I don't need Full HD 1080p or even 720p.  I want to keep the widescreen 16:9 aspect ratio and found 640 x 360 to be adequate but I don't know what other settings I need to change to make it still look high quality (i.e. small HD if that makes sense).  

I'm saving as an mp4 file 640 x 360, 29 fps, approx 1200 kpbs so a 6 min 40 sec video = 64MB.  While the total file size is what I'm looking for, why does the final output look horrible and grainy and pixelated?  

Can someone help me find optimal settings to make these videos look decent even though they aren't 1080 on a 24" monitor?  I just want them to look good smaller so I can have a fairly small file size in the end.

Thanks