It will become the first serious, and already widely adopted, codec. On2's codecs have formed the core of Adobe Flash (and it was surprising that Adobe did not counter offer for the company). The short term benefit is that the codec will work within the extensive range of Flash players out there (unless Adobe deprecate the technology).
In recent times there has been a steady move towards H.264 or MPG4 video, but this is a licensed technology (although the licence terms are very complex). Ogg Theora and other open source codecs are not widely supported by players or decoders.
So, in the short term this has thrown the video world into turmoil.
The long terms seems to favour the open source HTML5 video players with VP8, but the majority of existing video is FLV (Flash Video) encoded in VP6/7 and H.264.
Not to be ignored is the move in broadcast from MPEG2 to MPEG4. Microsoft has given up the ghost with its excellent VC1 codec and has already embraced H.264 and has announced that it will support VP8. Codecs are a battle which it lost a long time ago.
The quality of VP8 is said to be excellent at much lower data rates than H.264 (which is very old and not a very efficient codec) through using techniques such as constructed reference frames and loop filtering. The codec has multiple cores, thus driving adaptive technologies, i.e. serving multiple bit rates is easy and better.
Opening up the codec potentially brings extensive community support and the likely establishment of embedded technologies around the video stream, e.g. the ability to sync with other functions within the video stream.
The downside is the opportunity for hackers to use the codec to hide malicious code or malware.
Google has a record of open sourcing (and also of taking from the open source economy), but the thought that it has invested $120m in supporting the video production community is laughable. Google is a company that has perfected giving with one hand and taking much more with the other.
The big question now is 'will the broadcasters support VP8'. They would be utterly stupid if they let any of their content anywhere near this codec.