HTML5 is a new format for playing videos, that youtube and other video sites are beginning to adopt. The newer videos will most likely play, while older ones, still in Flash, won't be viewable.
There is also a YouTube app built into the iPad. This app communicates with YouTube's servers to watch videos that are compatible with the device. Both the iPhone and iPod touch are incompatible with Flash yet they too can watch YouTube videos with the built-in app. Even my cellphone can play YouTube videos through a custom application despite not working with Flash.
So yes, the iPad can watch YouTube videos (even YouTube HD) but not through the Safari browser.