This is a significant step forward.
About 10 years ago, at a "giant screen" format film conference, I saw a 4K digital image projected onto a 90-foot IMAX screen... but the technology at the time was such that it was a single frame only. The image was so sharp and clear that the audience burst into applause. It's still the sharpest
digital image I've seen projected that large.
IMAX movies are projected through two 2k resolution projectors. [en.wikipedia.org]
Note that the YouTube blog isn't quite accurate here. In the quote above, I've restored the link that the YouTube blog post had to the Wikpedia entry for IMAX, which provides some clarification. YouTube is talking about digital IMAX only. Within the large format industry, IMAX digital is considered to be inferior to traditional IMAX and to other giant screen formats. Traditional IMAX is projected using a proprietary projector showing 15-perf 70mm film, with larger screens and a different aspect ratio than digital IMAX.
So, YouTube isn't going to be outdoing traditional IMAX... but the 4K line resolution (eventually with less compression) may eventually enable YouTube to compete with the 1080-line Blu-ray disc, which is the home theater competition for foreseeable future. I think this makes it very clear that Google intends to move YouTube from the desktop into the living room.
As a footnote... for a comparison of giant screen formats, see these references in the
Large Format Examiner...
Large Formats [lfexaminer.com]
Digital systems have begun replacing film projection in many conventional multiplex theaters, and in a few giant-screen theaters as well. However, no existing digital system matches the image quality of any of the giant-screen film formats above.
The Shrinking IMAX Screen [lfexaminer.com]