On the surface, it seems bad because YouTube won't be preloaded into hundreds of millions of devices. However, people know how to download apps, and people love YouTube, so it shouldn't be very hard to get YouTube on iOS devices.
Really, this is great news for Google. Google gains total control of one of its most important products. Previously, Apple built the YouTube app.
Now, Google can build its own version of the app, which will hopefully be good. It also gets to stuff it with ads, which should generate a lot of revenue for Google. The ads might not be great for people that just want to watch videos, but Google has done a pretty good job allowing people to skip ads on the YouTube website.
As for Apple, it gets to wipe out another Google app from its system. Since the two are rivals, it's probably thrilled.
This appears to be one of those rare cases where the divorce between Apple and Google is good for Apple, Google, and consumers.