This will not be video ads - but a new system to embed adwords/adsense text ads into videos on blogging sites and yes, sites similar to YouTube.com (which currently has its own format). As a viewer, I may find these ads intrusive - despite how relatively low-key they are. As an advertiser, I would be salivating.
The new system is currently only available in the US and only in English. It will also only be made available to sites streaming more than a million videos per month. That's the restriction for the publishers, I don't believe that there will be restrictions for advertisers.
When someone is watching a video - you have their attention. They are not scanning a page, they are watching. The ads at the bottom of the video will be seen by the viewer - without a doubt. This should be a very effective - but I suspect expensive way to achieve better reach for your PPC marketing campaign.
If you want to learn a bit more, here's a video from Google explaining the system:
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