Here is what going on to the best of my understanding in as simple and as short form as I can put it.
The FTC (Federal Trade Commission) is an American Government organization that has the power to regulate all forms of communication in the United States. They passed a law called the "
Child Online Privacy Protection Act" known as COPPA for short. This law requires that all internet companies not use personal information to deliver ads to children under the age of 13 years old. Google owns YouTube and Google has an algorithm called "Google Brain" that learns what people want and delivers ads to them based on what they have learned about that person. Google Brain delivers the ads on YouTube that make the money creators receive when they monetize a video. The FTC found that YouTube was allowing Google Brain to deliver "Targeted ads" to children on YouTube videos. The FTC fined YouTube 170 Million dollars for violating the COPPA law.
Okay, now YouTube is afraid. YouTube does not want the responsibility to make sure that children are not watching videos that have targeted ads, so now YouTube is passing this responsibility of making sure that kids are not being targeted on to the CREATORS. We, the Creators, are now responsible for making sure kids are not being targeted. How YouTube is going to do this is by providing video creators with two options to define each video as "Child-Directed" or Not Child-Directed. This will be the creator's choice. But there is a catch. If you choose "Child-Directed" YouTube will take all interest-based ads off the video. Interest-based ads make the overwhelming majority of the revenue creators get paid. Taking them off will basically be almost the same thing as demonetizing the video.
So, what happens if you choose the option of designating the video as "Not Child-Directed"? At this point, YOU assume the liability if interest-based ads are shown on the video. So if the FTC comes to YouTube to complain about your video, YouTube will just point them to you because you told YouTube that the video was not Chid-Directed. Then the FTC will come after you. YouTube has washed their hands of it by giving you the choice. If the FTC determines that children are watching your videos and YouTube showed them interest-based ads, the FTC will fine you $42,000 dollars for each and every video on your channel that they determine to be Child-Directed. This could amount to MILLIONS of dollars depending on how many videos you have that the FTC decides are "Child-Directed"
It is also very important to understand that the FTC does not care whether you made the video to be targeted to children. That is not what they define as Child-Directed. They define Child-Directed as any video that children might be attracted to watch, whether you made it for children or not.
This extremely serious and goes way beyond just protecting kids. Just listen to these words straight from the FTC and if you don't wet your pants, watch it again!