Yes, it's image stabilization, to help you hand hold steady shots at slower shutter speeds than would normally be possible. Sigma calls it "OS" or "optical stabilization". When it's enabled, there are sensors within the lens that detect any movement and shift a group of lens elements to counteract "camera shake" blur.
Typically you can use three to four stops slower shutter speed with a stabilized lens, than would be possible without it. For example, a 200mm focal length without stabilization might normally need at least 1/200 shutter speed. One stop slower is 1/100. With reasonable care and good technique you should get a very high percentage of sharp shots. Two stops would be 1/50 shutter speed and you still should see very good results. Three stops is 1/25, but most shots will still be sharp so long as you are reasonably steady. And even 1/12.... four full stops slower... might be possible at 200mm. (If you are using an APS-C camera, 200mm "acts like 300mm".... so the numbers might instead be 1/300, 1/150, 1/75 and 1/37.)
The manual and previous responses are correct about the two different stabilization modes, too. Just to clarify, Mode 1 is "normal". The stabilization works to correct movement in all directions, both on the horizontal axis and vertical axis. Mode 2 might best be described as a "panning mode", often used for sports but possibly used for other things, too. Anything that's moving can be panned. "Panning" is done using a slower shutter speed (called "dragging the shutter") to deliberately introduce some background and/or foreground blur effect and lend a sense of movement to an image, while still rendering the moving subject reasonably sharp.
Mode 2 image stabilization only corrects movement along one axis.... the vertical. It doesn't try to counteract the blur that you're trying to introduce with the panning technique.
Below is an image that was done using a panning technique and slower shutter (note: take extra shots... panning can be tricky and only a limited percentage of the shots are likely to come out the way you envision them). This image was done at 1/80 with a 200mm lens on an APS-C camera...
Compare to the below image that was done without the panning technique, using a much faster shutter speed to fully freeze the subject's movement (note the difference in how the car's wheels appear, in addition to both foreground and background objects)... In this case, a 300mm lens and a 1/3200 shutter speed:
Both above shots were done with lenses that have image stabilization and were on identical cameras (Canon 50D, APS-C format).
Panning while dragging the shutter versus a fast shutter to freeze movement are two different ways to render moving subjects in a still photo.... It might be "sports" in these examples and many other cases, but certainly isn't limited to only those types of subjects. You can choose how you want to render any moving subject. A third possibility is to use a stationary camera... no panning... along with a slower shutter speed, to allow movement to blur. I don't have an example to show you... but you've surely seen images where flowing water or surf is made to look "creamy", while all the stationary objects in the image appear sharp. That's done using a long shutter speed, but usually with the camera on a tripod so there's no panning or other movement at all.
Hope this helps!