In short: Camera shake is a major cause for blurred, unsharp images. This is especially true for long tele-lenses in low-light conditions. The only classical ways to solve this problem is to use a fast (and expensive) lens or a fast (and less sharp and more grainy) film or (naturally) a tripod.

Canon's new approach solves the same problem by stabalizing the image itself. The camera motion is detected by 2 gyro sensors which measure the angle and speed of the shake. This information is used to shift a certain lens group off the optical axis to counteract this motion. The result is a significant improvement of handholdability under extreme conditions. E.g. it is possible to shoot at 1/60s at 300mm instead of 1/250-1/350s - an equivalent of 2 f-stops! Compared to conventional handheld shots the results are equally sharp and contrasty. There's no deterioration of quality due to IS side effects (tripod shots are always sharper though)! Obviously there are also certain limits of the technology! The gain of 2-3 f-stops is only "simulated". This means:

• a f/5.6 IS lens is still a f/5.6 lens. You may use it like a f/2.8 lens but you'll never be able to achieve the shallow depth-of-field which is possible with large-aperture lenses only!
• you gain these "f-stops" by shooting at slower speeds. E.g. you may shoot at -say- 1/90s at 300/f5.6 while a true 300/f2.8 lens can be used at 1/350s! This is Ok for static objects but you'll run into difficulties when the subject is moving.