The question is based on a personal experience uploading a video in FLV format, which is the very format in which videos are stored on YouTube.
So the original video was in avi format and it was crisp, I converted it to FLV and it also looked very good, but then I uploaded the FLV to YouTube and you can barely recognize it.

I assume they drop it to a default resolution or something to limit filesizes or transfer speeds required or (insert reason here) haha. If everyone uploaded DVD quality ripped video that could be replayed at that quality I assume youtube would implode.

Then again, I've never done the youtube upload thang so maybe I'm way off base here haha.

I also think it has something to do with reducing the file size of videos on youtube. I believe they limit the length of your videos too, but I'm not absolutely sure about that.

One thought about why YouTube does this is so that the service can remain free. Millions upon millions of people upload videos on youtube, and alot of the users of youtube probably aren't on very fast connections. Maybe they should think about having a hi-fi and a low-fi option, but I don't see that happening either. I also think that the smaller the file size, the easier it is for them to stream it to you and the other thousand people that might be watching the video at the same time.

Well, if anyone else has thoughts on it, I'd be glad to know!

The main idea of changing the resolution and quality would be so that users aren't waiting for the movie to load, which would loose page hits. But also to lower bandwidth usage. Imagine downloading HD quality movies from youtube with the amount of hits they get at the moment, they would be going backrupt paying for internet fees. Thats if their servers could handle the load of so many videos at such a large file size.
-jimmy

Yeah they resize the movie to a lower resolution so they don't take forever to load. They also limit movie length to 10 minutes (something like that) to stop people uploading full movies etc. If you need to upload longer movies you can become a 'director' which gives you that feature.
To get the best quality movie uploaded to youtube you should make it with the highest resolution possible or match the resolution to the one youtube resizes it to. This will make the movie appear much more clear once it's published.

-HellFire

I think they should at least make the res up just a little bit some of the quality of the videos is insane, I can't recognize anything, especially some of the ones taken with a camera phone. If I really wanted to watch a clip, I would wait for it, it shouldn't take really long unless you have dialup, in that case you shouldn't be watching the videos over the internet.

If anything they should have some sort of paid service to upload good quality videos. Google has enough money for bandwidth cost.