Send a PM to... er... What's his name..? Sloth or something..? 
EDIT: Zloth, I think.
There's also already a bunch of guides that talk about how to do it (links below).
Generally, folks use the /demorecord function to record what they want to capture, then playback the demo while using a video capture tool like FRAPs. You can just record directly from the game with a capture application, but using the demo function give you more control, better performance usually, and also allows you to edit the recorded demo to customize the movie. Alternatively, the demo playback also has a dump function that will output to a series of screenshots at a fixed FPS which you could then import into a video editing tool (bypassing having to use a capture tool).
Zloth's Screenshot and Demo FAQ
A Kitty's guide to making CoH movies! by IttiBittiKitty
Demo Editing and Videos - The end-to-end guide by Majik
Tutorial: Making CoH videos - everything you need by Storm_Knight (link to PDF)
Custom Demo Creation Guide by MasterMarble
Basic City of Heroes Demo Recording by NCSoft/Cryptic
Paris' Demo Guide by Paris
CoH Codex : Demo Models/FX/MOVs : Demo Info
Arc 111022: "Doctor Geist and the Scientific Method"
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Send a PM to... er... What's his name..? Sloth or something..?
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Hehe, it would be Sloth, but that name is always taken in every game I join. I've given up even trying to snag that name.
Anyway - right now I think I would have to point more toward FRAPS. Demos right now are a bit crazy with the timing. You'll see animations happen before effect a lot, like your character starts jogging a second before moving. Or vice versa.
Zloth helped me alot with this and others had some good tips as well. If you wanna make some and try it out I would first suggest FRAPS as its pretty easy to use and Windows movie maker is easy as well. Note one thing I didn't know at first was before you start recording with fraps, you can disable the UI features in the Options menu in-game so your health bar/names/numbers etc... won't show up in the video. gl, and hope to see some soon 
so, I have had the pleasure of actually seeing a couple of videos made by players of the game, and I would like to take a stab at it. how does one capture video from in-game play? the rest I can figure out, but this step is confounding me.