Interactive Options are when choices are laid out in the Youtube player in the form of linked annotations, often over a button or text made in the creation of the video. They may be actual interactive options that you can click on and it will lead to another part of the video, or to a different video, or they may be there just to tease you.
In more detail, many videos need to be created in order to make the story interactive. The best ones work much like a visual novel. You are given an option (annotation that links to another video) which will continue the story. Some act like a quick time event in a video game where you need to click the option or else something may happen at the end of the video you are on.
Like visual novels, some of these options may lead to bad or good options that "end" the interactive video. You can either start over from the beginning or go back to the previous video to try your luck again.
The more complex interactive option stories will have many videos and many people work to bring the full story together. Even so, most of these will have one continuous story, and many "bad endings" meaning that a split from the main story will usually just result in starting over or returning to a previous option.
Since circa 2018, this has become more-or-less obsolete since Youtube disabled the ability to add annotations.
Note: Please watch these example videos on Youtube.