One step above Sony's bottom-of-the-line DVD105, the Handycam DCR-DVD205 is essentially the Handycam DCR-DVD305 without the impractical extras: standard stereo recording rather than Dolby 5.1, no media slot for still photos--they're saved to the DVD instead--no accessory shoe, and no analog input for copying your old tapes to DVD.
The one dubious omission in the DVD205 is a USB connector, but that's mostly a problem if, like me, you work on a laptop with no DVD drive. The DVD205 is a little more compact, a little more cheaply constructed, with a slightly smaller 2.5-inch LCD. Since the 2.7-inch LCD on several of the higher-end models is small enough to aggravate the pain of the touch-screen interface, 2.5 inches doesn't seem significantly worse.
The two models share the same 1-megapixel CCD and 12X zoom lens, and as with the DVD305, that means a subpar 690,000 pixels used to capture video and 1-megapixel stills. So, unsurprisingly, the DVD205's video and still quality mimics that of the DVD305; they're pretty mediocre, with rampant edge crawl, noise, and motion artifacts. On the upside, it also means that it shares some of the DVD305's finer points, such as the support for wide-screen video as well as its reasonably fast autofocus and autoexposure systems.
There aren't any really decent DVD camcorders in the same price range as the Sony Handycam DCR-DVD205, but you can find better ones, such as the Hitachi DZ-GX3200A. And if you pry your wallet open just a bit further and shop around, you can get a significantly better model, such as the Canon DC40 or the Sony Handycam DCR-DVD405.