In its initial form, the video editor allows users to do the following: combine multiple videos to create a new longer video; trim the beginning and/or ending of videos; add soundtracks from YouTube's AudioSwap library; and create new videos online with no uploading required.
There are definitely helpful features to have. I upload a lot of video to YouTube. Every now and then, a mistake makes its way into the final, posted video. In order to fix it, I have to delete or hide the existing video, edit it on my desktop, and re-upload the new version. While it's mostly painless, there's a big drawback: you lose all your views.
Since YouTube now allows for editing online, it might be possible to edit out mistakes without losing your page views.
This can also be helpful for editing mobile videos. Say you shoot a collection of videos on your phone and publish them on YouTube. Now you'll be able to edit them down a bit and piece them together into one, longer video.
YouTube is offering a video demonstration of how it all works: