But you don't want it to be limited to plain video players - videoconferencing apps, games, and various real-time data displays etc are good fits to pip too. You are able to pipify any window without the app having to explicitly support it.
I think the main point of this feature is that it breaks the video out from a window in the existing page.
I can then interact with that video separately from the page. I can scroll around on the page, I can open other links. It decouples the video from the page.
There's lots of ways to open new chromeless window, or set a window always-on-top. That totally makes sense to be in a wm, but that's not all this is doing, right?
It can't. (on some platforms, the video ends up on a compositor subsurface, but so can many other portions of an app so trying to make a PiP feature out of that would probably not work well)
Right. It should send the stream to the system video player. If you then want no window decorations or whatever you go to the video player app developers.
This pops out the <video> element, so it works on 100% of websites with one. You can use tools like youtube-dl to extract/convert a lot of websites' video to a playlist compatible with external players, but it will never have as complete coverage.