1. True Sostenuto is very much as Saturn described. Push a key down, engage the Sostenuto, release the key, and you will hear only that one note being sustained, and this would go well into the high treble (as high as the dampers go). EXCEPT, I have heard of a couple of models where they managed to designed it such that the sostenuto peddle works independently of the sustain peddle -- this is slightly different from Saturn's description (but I personally would have prefered this kind of design).
2. Some pianos try to immitate sostenuto by building in a middel peddle that sustains the whole bass region, I've seen this called "quasi-sostenuto," but I don't know if this is a proper name for this mechanism. This might be what Shagdac was referring to.
3. Of course, some upright pianos make the middle peddle engage a piece of felt to soften the piano's sound... but this has nothing to do with "Sostenuto."