First, right-click on a YouTube video.
You'll see their custom menu appear first.
Now, right click next to their menu (while still somewhere on the video frame.)
You should then see the browser contextual menu with 'Picture-in-picture' in the list of options.
But there is a PiP button in the "hamburger with musical note" menu in the toolbar.
It seems Google has an optional PiP Chrome extension as well. It looks like it just makes the button more visible.
https://chrome.google.com/webstore/detail/picture-in-picture...