What is the best settings in handbrake for 640x480?
One thing you can certainly do is lower the bitrate. 23 is quite a high bitrate, even more so for a h.264 .mp4. You should get away with a bitrate of 5-7. Also, you're encoding using the preset of 720p, which would be 1280×720 pixels. However, you stated that your resolution is only 640x480, so matching those settings will do a great deal in filesize aswell.