What and how you annotate your videos depends on what you want to do with the notes afterwards and the context of usability testing in the organisation.
These days I'm mostly working in contexts where people are interested in immediate actionable results and are doing regular usability testing multiple times during product development. They're not interested in justifications, or snippets of the videos, or extensive documentation - so I tend to skip using software tools completely.
In this context I generally use post-it notes. Two separate colours:
- Colour 1 is for direct observations and quotations ("Loved X", "I'm not sure where I am", etc.)
- Colour 2 is for anything we inferred from the observation ("Signup confusing", "Customer doesn't notice sizing widget", etc.)
- Get as many folk as possible to review session videos at same time.
- Everybody writes post-it notes and sticks 'em on the wall.
- Affinity diagram at the end of viewing all videos.
- Spot common/major problems and summarise
Sometimes we even skip the videoing bit and have observers do this during the sessions - with the affinity diagramming at the end of the day. With this approach you can easily do 5 usability tests in a day, process the results, and have a bit of time left at the end to brainstorm some options for solutions.