As far as I understand, the motion estimation is a process, where when we have two frames t and t+1 we search for the blocks/pixels that changed position and then encode that change with a motion vector. So in the end we have only the frame t and its encoded successor.
After that we use compensation in order to use these motion vectors, and further encode only the difference between the "vectorized" frame t+1 and the frame t.
Firstly, am I right? Secondly, when the prediction issue comes into play? I'm reading about prediction all the time, but in the sequence I've described, I don't see any prediction happening anywhere.