tes's writeup is quite an excellent WU, but I feel it misses the point of the song altogether.
Video Killed The Radio Star is about how the advent of television essentially destroyed the radio industry as it was at the time, and rendered many famous radio celebrities into has-beens. After television caught on, the radio industry had to reinvent itself, as nobody with a television was interested in sitting around the radio listening to radio serials any more. Some shows and celebrities (Abbott and Costello, The Lone Ranger) were able to make the transition from sound stages to television studios. Others (Lum and Abner, Lights Out), were not.
Although radio programs were very inexpensive to produce, many of them relied heavily on the listeners' imaginations to tell the stories, using dramatic reading and basic sound effects to paint a broad picture. Many shows were simply unable to achieve the level of visual special effects necessary to show the things that had previously been entirely in the listeners' minds.
In addition, many radio actors who had magnificent speaking voices had poor visual stage presence, and didn't have the same impact. Amos and Andy was entirely recast when it made the transition from radio to television, as the radio actors were all white, playing black characters. The Lone Ranger, which had previously been played by Brace Beemer and Earle Graser, was recast with Clayton Moore as the Lone Ranger, whose main qualification was that he looked the part.
Video Killed The Radio Star, ultimately, is about the dramatic changes that television made to the nature of celebrity, and about how new technology has a tendency to push out older technology that fills the same purpose, something we should always be aware of.
Trivia tidbit: While most people know that Video Killed The Radio Star was MTV's very first video, aired on August 1, 1981, it was also MTV's millionth video, aired on February 27, 2000. It is also the third-most aired video in MTV history, with Peter Gabriel's Sledgehammer being first.