----
The most important thing to us is probably the demo. And by demo we mean a working prototype of whatever you plan to build. Mockups can be helpful too, but they're much more convincing if they do something. Even if you have nothing now, you should be able to build something in the time you have.
(Demo = live. Please don't make a video. We won't watch videos.)
----
If you haven't actually launched it yet, maybe a video is ok? Or you may want to make something in a wireframe program.
I think the purpose of the application demo is to provide a visualization of what you wrote in the YC application. They say they only view demos from the most promising submissions, so if they're viewing it you already piqued their interest. Short of a live working prototype, I'd create a page that can most effectively show 1) how your app will generate revenue, 2) key differentiators of your app from similar ones. Regardless of the demo format, their time per submission is minimal so be clear and concise.