Recently I was working on an e-commerce website that had a custom modal box show a Youtube embed. The Youtube video is embedded using an iFrame (seems to be the best approach for embedding) and a close button need to be absolutely positioned above the video to close the modal.
After scratching my head for what felt like ages, reading documentation I found the solution. Append ?wmode=transparent to the end of your video URL, see below for an example.
Hope this helps someone, because this took forever to sort out.