In all other lines of media, products will have accompanying images to advertise the product. Whether it's a band's CD cover or a piece of artwork designed to advertise the latest blockbuster movie, this is what a thumbnail is to you. It's the image that accompanies your video, and it plays a massive part in the viewer's judging process regarding whether they're going to click on and indeed watch your video.

It's absolutely key to have a properly designed thumbnail in mind when you're creating a video. It plays a massive part in the viewer's judging process as to whether they're actually going to click on your video or not. You'll want to create something aesthetically pleasing and eye catching, which also alludes to the premise of the video; not something completely unrelated.

I mentioned earlier in the post that viewer retention, or the amount of your video that is watched on average, is one of the ranking factors taken into account by YouTube. Your thumbnail definitely ties in with this. If you've created a video about SEO and you've slapped on a thumbnail of a half-naked supermodel, your CTR might improve, but your viewer retention wouldn't be in great shape.
This tactic was used massively a few years ago with some of the highest viewed videos on YouTube having vastly misleading thumbnails and low quality, unrelated content. Thankfully, this isn't quite as prevalent these days.

Properly optimized thumbnails are also excellent when it comes to retaining viewers over the course of several videos. If you've uploaded a series of videos and a viewer has seen one part of it, they'll most likely check out another one in the suggested videos section, considering the thumbnails are very similar.

Now, when it comes to actually making custom thumbnails, you'll need to verify your YouTube account, and it needs to be in generally good standing. You can find these within your account settings, under the Additional Features section:

As I mentioned earlier, this is the image that will accompany your video throughout YouTube, and it will be resized throughout different previews and players. With this in mind, it's important that when you're creating a custom thumbnail, it is a high-quality image with a 16:9 resolution. In terms of actual image size, 1280×720 will do the job just fine.