There are a few ways. and isn't there a thread like this somewhere else?
First is to re-encode them. This would take a very long time and need a comp with a lot of CPU power. This basically burns the subtitles into each frame. There are many programs out there that will encode subtitles. Encoding usually reduces the quality and the gets extremely complicated and you need to know certain things before you start encoding. For that you many want not want to do an encode.
ENCODING
First off is if you want AVI, which is basically universally accepted and playable on PS3/Xbox 360. Problem with AVI is that it's outdated and has files maybe 50-75% bigger for the same quality. For this, the most commonly used program is virtualdub. You'll have to DL a filter called "VSfilter.dll" and stick it in the program. Second off is .h264 for which MeGUI encoder works really well with and you can insert the subtitles there. .h264 can be turned into a .mp4 file and play on PS3 or XBox360 if you do the settings correctly. If you wish to know more about encoding, it's WAAAAY too much to be put here so go to our FTV-subs irc and we can teach you through and through if we're there or go see our tutorials or something.
MUXING
This may be a faster solution. I hear that .srt subtitles work on the xbox and PS3. What you will have to do is demux the .mkv file with mkv extract. You should get a video file (.h264 most likely), a audio file (.aac most likely), and a subtitle file(.ass most likely). PS3s and XBox360s hate the .ass subtitle files and prefer .srt. You have to convert the .ass file to .srt (this may make the subtitles lose effects and styling). and then you have to mux them all back together with a program like mp4muxer.
Now this is complicated. You can probably find a program out there that is simple to use, but I haven't seen any that brings good quality without doing all the work above. See our
IRC channel(you'll need an IRC program like pidgin, mibbit, or mIRC. You can also go to
rizon.net and go to the channel #FTV-subs) if you'd like help from us personally and our forums can even help you a little about
encoding, even though it's a bit incomplete.