That conditional statement is a bit convoluted, basically IE sees the conditional comment, and if it is false, it ignores everything between the opening and closing conditions. So to make it work in non-IE browsers, you basically close the comment (initially), then reopen it just before the closing conditional. I always seem to mess it up, so I just copy it from the HTML5 boilerplate if I forget.
On the second question. Because IE7/8 do not allow communication between the current page and an iframe, there is no way to pause the video. So, in this case, you might want to revert back to the original youtube video embed code (embed, not iframe) to make the video pause.