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A server is just a computer. You could run this software on the computer in front of you, or a computer in a datacentre. Either is fine.

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The question then becomes why not just ssh into that computer or whatever and just use yt-dlp on a terminal on it instead of a javascript wrapper around it.

Yeah, but why mess with port numbers when you can just run it as a standalone process?

Because you might want to share it with other people or even your own other devices on the same network

Well, you can do so by using e.g. VNC.

One nice part is that you can use the same setup for everything and you don't have to play the sysadmin role all the time for every app.

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