Most IP cameras do something like this... means that it lets you digitally zoom in on a portion of the total recorded image. Basically it just crops a small area of the picture and expands it to fill the original full frame (the "zoom" part), and then lets you move the crop area around (the "pan/tilt" part).
For example, take a look at this 1.3MP (1280x1024) original (NOTE: I've drastically increased the JPEG compression on these images to keep the sizes down, but the quality will suffer somewhat):
Now this is a 640x512 crop, resized to 1280x1024, which is effectively a 2X zoom factor:
And this is a 320x256 crop of a different area, again resized to 1280x1024, which makes it look like a 4X zoom.
When you're doing in in-camera, the software allows you to adjust the crop amount and move the cropped area around in real-time, thus simulating "PTZ" functionality.