Some time ago Youtube started to provide audio and video separately. Due to that, for full videos whole data needs to be downloaded before reading (it's hard to merge them on-the-fly). For just audio or just video data streaming is intended, but needs reimplementation.
I think these monolithic files are provided only for up to 720p quality, mainly for compatibility with older Flash players. To download the maximum quality with youtube-dl, you have to use "-f bestvideo+bestaudio" - then, youtube-dl will download both streams, and merge them for you with an ffmpeg invocation.
yes. you can force the streamable mpg4 download with the -f option (-f22), but it seems not all videos are encoded that way. livestreamer might be the tool of choice if you don't want to use your browser to watch a youtube video.