When optimising media like images (jpg / gif) and video( mpeg/mov/flv etc) there is a compression applied.

You can set that optimisation level and its a case of weighing up the quality against the file size.

When viewing TV channels ( through a standard TV) for instance you see a very high level of detail because there is a lot of data coming through to your television.

On the internet however bandwidth / data trasfer is a huge issue, the more data - the higher level of detail.

If you export an flv (or any file) to a 90% level you will get a high quality video but a big file size.

If you export an flv to a 10% level you will get a low quality video but a small file size.

The problem with Youtube is that its an automated process ( the compression is done on their own network/ servers) and it produces low quality videos for 2 reasons ; mainly so users can view videos without waiting a while for them to stream and to keep their own bandwidth / storage levels down.