It's relatively simple... if you have a log/petitions processing and thumbnailing server because using the same server for streaming and thumbnailing dinamically would make your server go a bit crazy.
As you may have seen youtube uses streaming like video delivery, you can look at the video end without loading the entire flv.
Every time yo click and load a specific video position the server delivering the stream gets a petition for that specific position. To save server resources videos are segmented in key positions that are several seconds long, usually between 5 and 10 seconds, but this is completely adjustable value.
After that it's just a matter of math... calculate how many times a video position is requested... then make a screencap of the most requested position for a given video.
Can you do that too? Probably, if your coder knows how to do it and your server admin is smart enough.
Is it worth it? I know how to do it and I don't do it on my sites... so my opinion is that it's not worth it
