User blog comment:Xean/New ways to showcase Video/@comment-4705324-20121031203044/@comment-4839035-20121031203706

You go into source mode, click "Video", and follow the instructions from there.

It shouldn't infringe any copyrights, as it's a feature supported by Wikia (I assume they would be responsible for having such feature, not you, if it was breaking copyright laws).

The wiki I edit at has over 500 YouTube videos, so you should be fine :)