The first step is the easiest. First find the video you want to watch download. If you want the HD version add &fmt=22 at the end of the URL. This will link to the HD video file. An example can be found here.
Your internet connection will churn away. An average (guess) of video sizes. Normal video ~5mb, high quality video ~40mb, HD video ~150mb. A lot of space for a 10 minute video. But it is worth every second. The quality is so good.
Anyway enjoy a little *hack*, it might not last that long. If you know of a better why to download YouTube videos please leave a comment.