Thanks, Scrugg. I appreciate you and K T helping me understand this issue. I now understand.
In short, for other iBooks Author would-be publishers, although the tools (Dashcode, YouTube Downloader, iBooksGenerator) exist to embed a YouTube video in an iBooks Author file so it plays with or without an internet connection, you should first secure permission from its creator, assuming the video isn't yours to begin with.
Although Apple may approve the book with the embedded video you risk its creator alleging copyright infringement and compelling you to remove the video. In addition, you may have to answer to Apple who may ask for proof that you secured permission to use a particular video.
What I've done instead of embedding video is i to use a screenshot of a video and put underneath it the following:
"Touch here to watch the video trailer in YouTube"
I hope this method passes muster with Apple and iBookstore. The book, Super Apps, has been re-submitted and I will post in this thread what happens.