Systems and methods for a capsule camera having on-board storage or wireless transmission to control image capture using motion information and to encode captured images based on motion compensated video compression are disclosed. In order to conserve the precious storage and power resources, the capsule camera measures motion metric to select a skip mode or a capture mode. In order to reduce computations related motion metric derivation, the motion metric is based on sub-images corresponding to a current frame and a previous captured frame instead of full-size images. When the skip mode is selected, the capsule camera exercises storage space/power conservation by skipping unnecessary image capture and/or reducing luminous energy of a light source or other means for power conservation. When the capture mode is selected, a full-size full-resolution frame is captured and compressed using motion-compensated video compression to achieve high compression ratio.