Calling the move a "critical step forward," YouTube engineering manager Richard Leider detailed the company's reasoning in a post to the official YouTube Engineering blog. It represents the culmination of four years of work, and was enabled by several recent additions to the HTML5 video specification.
MediaSource Extensions allowed YouTube to provide adaptive bitrate streaming, which provides a mechanism for adjusting the quality of the video stream based on the throughput of the user's internet connection. Encrypted Media Extensions provide a framework for layering digital rights management into a standard HTML5 video player, and have also spurred adoption of the standard by companies like Netflix.
Leider also calls out Google's VP9 codec — though videos will continue to be available in h.264 — as well as the new live-streaming WebRTC technology and HTML5's new Fullscreen API.
Alongside the user-facing changes, YouTube has also officially deprecated its Flash API and object embeds in favor if its more recent iframe system. There is no word on when or if YouTube will disable Flash entirely.
Flash usage has been driven steadily downhill largely by the popularity of Apple's iOS devices, which do not support Flash. Blowback from that decision prompted Jobs's widely-cited open letter in which he recounted six reasons that Flash would not make its way to iOS.
Adobe has also faced numerous security problems with Flash. Most recently, the company acknowledged a critical vulnerability in the Flash player that could allow an attacker to take over users' computers simply by directing them to a website.