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Google added support for picture-in-picture (PiP) on Android TV devices (above) with the update to Nougat, but developers haven't exactly been rushing to add support. Maybe now they'll get on it. Android O is adding support for PiP video on phones and tablets.
Picture-in-picture video is not exactly a foreign concept, so I probably don't need to give you the play-by-play here. The gist is that when watching video on Android O, you'll be able to shrink the video down into a floating window and do other things on the device. With the proper updates, apps can put themselves into PiP mode from a paused or resumed state. Developers can specify aspect ratios and custom interactions (eg. play/pause) while the video is in PiP.
In addition, Android O makes a few low-level changes to the windowing system. There's a new overlay window for developers to use instead of the system alert window. That's a way to get a window on top of everything else where the user will see it. There's also support for launching activities on a secondary display. You can check out the specifics on the Android support site.