The LEGO camera is really a Logitech QuickCam that has been repackaged into a special translucent brick. It has regular LEGO studs on the top and bottom as well as Technic style mounting holes on the sides. It is the same camera used by LEGO Studios except the plastic color is different. It has a built-in microphone for recording sound, a push button for taking still photos, and a ring for manually adjusting the focus.
The recognition software runs entirely on the PC. The incoming video image is divided into a predefined pattern of regions. There are 20 predefined patterns that can have up to 8 regions. In each of the regions you select a condition that will trigger an event. The conditions include movement, light level, or the presence of a color. When an event is triggered, a stack of instructions executes to make sounds, capture images or send motor commands to your RCX. There are over 25 different instructions you can put into the stack.
Programming is reminiscent of stripped down RCX Code. There are no variables, subroutines, or conditional statements. Everything executes inline with the exception of a loop type instruction. Once an event is triggered no other processing occurs until that stack of instructions completes. There are provisions for a single background activity like simply scanning the camera back and forth.
Vision Command interacts with your RCX through the IR tower. In an immediate mode it can send commands to the RCX one-at-a-time to turn on motors, set power levels or play sounds. When running a Vision Command program, a small control program is downloaded to the RCX that contains all the instructions for each event. From then on it only sends a single number to indicate which event has occurred. The sensor inputs on the RCX are not used by Vision Command and the RCX can't be easily programmed independently.
Vision Command Links:
You can read my review of Vision Command in Robot Science and Technology magazine.
Lugnet has a special interest group for Vision Command at http://news.lugnet.com/robotics/vc/ .
A very handy program for editing the video files you make with VC is AVIedit from AM-Soft.
Don't forget the official LEGO MindStorms page.