Keane from the YouTube team announced in a YouTube Help thread that the team there has updated the YouTube player to make it cleaner while also adding features.

The changes include:

Captions, when available, can now be turned on/off using a toggle
To turn annotations on or off, click the gear icon
To change to the large or small sized player, click the gear icon
To go into fullscreen mode, click the icon in the bottom right of the player
Options for quality (144p, 240p, 480p, 720p, etc) are available in the gear icon, as before.

Here is a large picture of some of the changes:

I am not sure if I like the new controls and how you access them. Now it takes two clicks to change the quality of the video playback.

Forum discussion at YouTube Help.