[Galaxy S6 Edge Q&A, Help & Troubleshooting] dwallersv:
More evidence that the switch in the camera options refers to DIGITAL image stabilization:

Set video resolution to FHD (not the 60fps option). Otherwise, the Video Stabilization setting is not available (grayed out).

Set the Video Stabilization setting to "ON".

Go back to the camera, zoom in fully (8x). While pointing at something easily identifiable, without shooting video, note that the image is stabilized quite well -- you can simulate "shaky hands" and the image is very stable, not jittery. However, you are not shooting video yet, so settings specific to video are not activated. What's happening here is the OIS is working, and doing a very good job.

Now, click the video recording button. You will notice two changes in the image: It will zoom in a little bit more without any zooming input from you, and the image will get rather UNSTABLE.

It turns out, what you had selected in the settings is actually, truly, being invoked. No, this is not a bug. The switch is not acting the opposite of how its labeled, even though the RESULT is exactly that in practice.

Here's what's happening: As someone else noted, that switch controls digital image stabilization. This is a software process, that basically crops off a small margin all the way around the picture and reserves these pixels for calculating a smaller moving "window" in the larger captured image space. The software tries to move this window around so that it follows the random small movements from jiggling, unsteady hands, etc. In this way, the image appears stable rather than moving around in the capture space.

This is why, when DIS is turned on, the displayed image zooms a little bit -- that's the "reserve image edges" being cropped off and the remaining image being expanded into the display area.

So, here's what I think is happening: When you have Video Stabilization on, the phone turns off OIS and enables the DIS algorithm. The OIS camera hardware is something like a Googolplex times better as IS than Samsung's crappy algorithm, so the end result is the appearance of IS being turned OFF and a little loss of resolution of the video image as well.

Once the video is stopped, after a few seconds you'll see the DIS turned off, OIS turned back on, and the image will zoom out a tiny bit and become very stable again.

Bottom line: The Video Stabilization setting in the S6 camera app is worse than useless. It's adverse. It should be left off at all times under all conditions.

How did this happen? My guess is, the engineering team responsible for the hardware was organizationally distant enough from the camera software team (keep in mind the latter are trying to develop an app that can run across many phones). The hardware guys put this incredible camera in the phone with awesome OIS. The software guys, not focused only on the S6, passed through the DIS that's been in the camera app forever, and no one engineer was responsible for integrating all this stuff for the camera feature itself, testing it, making sense of it, blah blah blah.

And here we are.

Bottom line: Because of the OIS in the S6, the DIS feature in the camera app is unnecessary and should be left OFF. In fact, the way it works misleads the user into thinking IS can't be had with the video resolutions higher than non-60fps FHD. In fact, exceptional IS is available at all times in all resolutions for stills and video -- the hardware OIS is always on the job, unless you turn it off by turning on the [digital] Video Stabilization option in the settings.

The only bug here, if any, is that this setting seems to turn off OIS, when it doesn't need to. Perhaps with OIS on, and the DIS processing applied to that stabilized image, we might get something even better than OIS alone. Alas...