PiHole blocks by preventing certain domains from loading (the ones you specify on your blocklist). It’s not examining any content. It simply sees a request for say examplespamdomain.com and blocks it when something on your network requests it. Youtube serves ads and videos from the same domain, so this approach doesn’t work.

They can block other ads, but they can’t block YouTube ads since YouTube ads come from the same domains as the videos.

YouTube fixed that ages ago. Ads and videos are from the same endpoints now. So as far as pihole is concerned it’s all videos

AFAIK due to how YouTube apps on Smart TVs work if you try blocking the ads it’ll stop loading the videos altogether. Similarly how on phones people are using modified apps like Vanced instead of adblocking ad servers