Yahoo! Video is a search tool that helps one search for videos scattered on various websites. Google Video was something different. Google Video acted as some sort of hosting place for video content. Of course you could search for videos using Google Video but you were only able to search for those videos that are hosted on Google Videos itself and not for videos present in the rest of the web.
When Google bought YouTube, the expectation was that Google would in one way or another merge both Google Video and YouTube into one thing. It was expected that YouTube might ultimately be dissolved into Google Video, since both provide essentially the same service which is hosting video content and building video sharing communities on top of that.
Today, Google announced that it would continue supporting YouTube as a separate entity providing video hosting for its video sharing community. On the other hand, Google Video will be refocused to act as a search engine for videos on the whole web. Google Video allowed you to search only content that is hosted on Google Videos itself. Starting from today, it allows you to search for content present on YouTube as well. Later on Google will add more video content providers to its video search and ultimately search all videos found on the web. This brings us to essentially what Yahoo! Videos was doing ever since it first started.
This move sounds reasonable. When you use Google Images it allows you to search the whole web for images. So it's reasonable enough that when you use Google Video it would allow you to search the whole web for videos.
This explanation today by Google clarifies things out. It also explains why Google kept using YouTube instead of Google Video to publish its own videos ever since its acquisition of YouTube. I wonder if the next step would be to disable the hosting of new videos at Google Video and to make this only possible via YouTube. We'll just have to wait and see.