That sounded very strange, so I looked up the YT terms[0] to see the wording.
Section 6 part C: For clarity, you retain all of your ownership rights in your Content. However, by submitting Content to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the Content in connection with the Service and YouTube's (and its successors' and affiliates') business, including without limitation for promoting and redistributing part or all of the Service (and derivative works thereof) in any media formats and through any media channels. ...
Right there, it clearly states that they can do what ever they want to do with the video you uploaded. Yes, the part about reproducing, distributing, and perform the Content makes sense. That's the entire point of the Service. "Prepare derivative works of" is the part that gets me. Is that just lawyer speak for "you provided a single video, but we will then transcode to different frame sizes/bitrates", or does it specifically mean what it sounds like in they can take your footage as source to create new content? If it's the former, then okay, just say so. If it's the latter, then, wow.