So, you came here in search of answers. Particuarly answers to How did squidward die?
The Answer First: He didn’t. Squidward is still very much alive! Just as Spongebob and that lovable starfish Patrick! Well as alive as a cartoon character can be anyway.
Now that we got that out of the way, this mystery comes from an old Creepy pasta story, which are stories created by random users designed to make the reader believe they are real. In this particular instance, the video was to make you believe Squidward had committed suicide from a long lost tape. But this is all just really good fiction, and fancy video editing.
If for some odd reason, you wish to watch this “lost episode”, here it is in all of its glory.