https://community.socialengine.com/forums/topic/1029/se-default-video-plugin-disable-embed the tutorial explains the video settings. Please have a look at the setting in your admin and see that the setting you mention controls the iframe embeds on various pages of the site. Please test embedding a video in a blog or forum perhaps. 

If you don't want users to create videos, please see the member level settings in the same tutorial.

Yes but I said that doesn't control that. The setting says it doesn't control that. It controls iframe embeds within places such as blogs and other areas of the site where videos can be embedded into the content. You are speaking of the external urls. The only thing i can think of is disabling iframely but that would also mess  up links I think. I'll have to go look.

https://support.socialengine.com/php/customer/portal/articles/1659253-admin-panel---plugins->-videos that's the tutorial. I didn't link the correct thing above. 

I guess you could set the disabled sites in the iframely settings. Tutorial for iframely is in kb too but I'm not sure how well that will work. You would need to disable all of the various video sites. I think you'll need a customization to disable video sharing options other than using the method to block the video sites. You may be able to hide the option to use external as an option by doing css display none I guess.

I'm not sure. I hadn't tested it a lot yet. Getting a patch ready for release atm.