You're watching the Sete Cidades stage of the 2014 Rally Azores. Yes, that is the edge of a volcano.
I should say that it's a dormant volcano, but the Sete Cidades Massif is an ancient volcano nonetheless. Located in the Portuguese islands of the Azores, the bowl of the volcano is so large (one mile across) it includes two lakes.
The rally is currently part of the lower-level European Rally Championship and has been running in some form or another since 1965. Why have I never heard of it before? This is quite possibly the most badass location for a rally stage possible. Well, I guess the volcano could be active...
(Hat tip to Bill Petrow!)