Once you have the embed field enabled in the settings, all you do is copy/paste the embed code from YouTube (it will look like a bunch of HTML) and paste it into the embed code found in the podcast episode box. The podcast episode box should appear within your edit post page. Here's a screen shot:
The embed code is used in place of the PowerPress player. So if you posted an mp3 episode you would see an mp3 flash player. If you posted video, you would see a generated embed for that media file. If you add your own embed in the "Media Embed" field above, instead of the default embed for that video file, the embed from your favorite video sharing site will be used instead. Is this clear now?
Users cannot subscribe to embeds, you still need to upload your original video file (wmv or m4v) to a web server and then place the URL to this media file in the Media URL box above.
Sum it all up: Embeds appear on your web site's web pages for in-page playback. Media URL's are used in your download links and in your feeds for users to download and sync to their media player such as an iPod or iPhone. PowerPress creates an embed from your Media URL by default, but if you enter your own custom embed in the "Media Embed" box, then it will use that instead.