I wasn't able to edit my post, so I'm appending with this one, sorry about that!
So Graveyard was looking to help a friend with a G3 to playback videos back in 2014, then in 2017, Patrick asked the same for his granddaughter with a G3 mac for her birthday. It's amazing to see old macs still getting some love from time to time!

With the accessibility of both intel macs and win machines, possibly including virtual ones with emulation like qemu, converting youtube videos in mp4 formats to xvid (480p) or vcd (360p) formats that can fit on an empty cd or firewire external should not be hard.
Once converted properly, Quicktime in OS 9 can play XviD files with the
right codec installed, and as Graveyard finally recalled himself, VCD CDs can be played with software VCD players under OS 9 and a mac with a CD-ROM. I know because I used to play VCD disks myself in macs as far back as Mac OS 8.1 and macs the Powerbook 1400cs as well as the 3400c and their equivalent desktop models. XviD videos are easier to store and playback on hard drives, but VCDs can make up a simple CD library. I can lookup the VCD player that works in OS 8.1, but Quicktime 6.0.3 and maybe earlier versions I believe may also work with VCD CDs natively.
It's also helpful to know that encoding video files can be achieved on windows for playback on a mac.
XMedia Recode is one of many encoders that can convert an mp4 or mkv video into both an VCD disk image or AVI video file. I mentioned this one simply because it happens to be free and it's one I've personally found to be pretty easy to use.
I almost forgot to mention that both the Sorenson and Cinepak codecs, which are even older mac-compatible video formats, can output video with quality that's similar to VCD. The issue with those and other older formats is one of how and where to encode with those formats. Quicktime 7 (once it is registered) is capable of this type of conversion, and it can be installed in newer versions of OS X.
Of the two codecs, Cinepak can also playback on faster '40 68k macs as well as in emulation using Basilisk II. If the video is kept small enough in dimensions, bitrate and audio, it's possible to play video on older macs using Quicktime 2.5, but the playback quality and size of the video will not match the VCD and XVID video formats.