Image by atomicShed via FlickrThe youtube annotation system is pretty cool. You can add little text bubbles to your video that display in crisp quality with selectable colors. The newest features allow you to force-pause a video other cool stuff like create clicable links to other videos, which has inspired some experiments with Youtube Interactive Videos, or Video Games, something that never really took off.
Another cool feature is open annotations. A video owner can make available the video for open annotations which gives viewers the option to add their own little bubbles.
This is a nice feature but can quickly get out of hand like in this following video.
After allowing open annotation on the popular video Epic Soundtrack Orchestral series, it started getting flooded with annotations
Well I couldn't give you a better example of what annotations look like, because this video has almost every example of it. And you can add your own by clicking the green button at the bottom.