Yep, just record the demo(s), then use FRAPS or another game recording software and record over the bits and clips you want. Then open the files you recorded over the demo with, and you will need to drastically compress them. If you're gathering a bunch of clips together, you will need a program like Sony Vegas.. which costs a bunch, but I think they still have the 30 day trial on their site. You put the clips together, edit them there, add songs or and pictures.. then render the complete package.
If it's just one continuous clip, just use VirtualDub. It's a great program that compresses videos severely while keeping the overall quality looking great.
Now, if you want to do some super high quality x264+ videos.. you'll need to talk to Dopefish about that.. but it's rather hard to comprehend if you're new to the stuff.
Just google the programs I mentioned above
If you want to upload your videos, sign up for NoobFlicks.com
It's the best quality you can get.. screw YouTube.