It does this by adding new buttons to your post editor. The default sites areYouTube, DailyMotion, Vimeo, Veoh and Blip.tv; though you can several more. You can also use the shortcode [flash] to link to any flash video.
The plugin has a huge amount of customisation options. You can select which video services you use frequently and set the default size for them too.
Another great feature is the ability to customise the player for each site. This enables you to make the colour schemes for Youtube and Daily Motion videos different.
Alex, the developer of Video Quicktags, has created a plugin which is perfect for video bloggers. There are lots of great video plugins available to WordPress users though Video Quicktags is one which should be considered by anyone who posts videos frequently.
More information can be found at the links below.