The yellow light indicates a general hardware failure. It basically can be anything but most of the time it is when the GPU or the CPU has been disconnected from the motherboard
What is the #1 Cause the PS3 Yellow Light of Death?
Heat. The PS3 generates a lot of heat as it runs since it has to process complex instructions and graphics. Over time this heat can damage the components and connections inside the PS3; most of the time it melts the connection connecting the CPU or GPU to the motherboard. And you are left with the PS3 yellow light of death.
I haven't got the PS3 yellow light of death, what can I do to avoid it? Keep your PS3 cool. You can do this by placing the PS3 in an open area on a smooth, flat hard surface when you are going to use it. Never use it on carpet; it traps the heat and blocks the vents leading to a very hot PS3. You can also make sure that there is no dust blocking the vents as this obstructs airflow. If there is dust on the vent use can use a weak vacuum such as a hand vac to remove it.
Sadly, I have fallen victim to the yellow lights curse- What can I do about it?
You can send your PS3 to Sony, have to fork out $150 (unless you were lucky and it was still under warranty) and wait 6 weeks to have it returned. OR You can repair it yourself. Most people can do this so long as they have good instructions step-by-step instructions from a good repair guide.