The new service lets you select a few keywords you'd like to associate with your video, like "falling down" or "cat battles." You then set a budget to decide how much you're willing to pay to have your video promoted; you can determine whether you want to spend 10 cents or $20.
When someone searches for the keywords you've chosen, your video then appears on top or in the right-hand corner of the search results, with an image and some descriptive text. Ad placement is determined upon keyword relevancy and the maximum price per click you've set. You pay only when they click on your video--not every time it's displayed in the search results.
Sponsored Videos is not only a great way for organizations and individuals to market their wares on a mega-popular site, but it may also be the first successful revenue-generator for YouTube, which cost Google $1.65 billion.