When does YouTube Reencode Videos?
Yes, youtube re-encode videos. You can see more information here, and find, which codecs most fits for youtube upload (in case you will make new ones).

As a example of degradation, here is video, which was re-uploaded to youtube 1000 times in 2010 year:


                
            

And with different content you will see more degradation. You can see it here  at 2:33::


                
            

About "When": Re-encoding happens right after uploading in the save progress-bar will be written "Processing"