Video is in development, but the system is pretty straightforward. We're integrated with Zencoder. Our clients (e.g. mobile/web) request an upload endpoint from our server (GAE). The endpoint is a pre-signed S3 upload url computed by the server. The client uploads to that url and then triggers a "process" API on our server which issues a request to Zencoder on the backend to pick up the videos from S3 and begin transcoding them. Zencoder sends back a response that allows us to associate the "video" entity in our datastore with job ids/output locations. You can set up a callback so that Zencoder will notify GAE when transcoding is complete. The output is available in S3, including thumbnails.

So I guess this is also an endorsement of Zencoder: it rocks and was very easy to integrate with!