This MSDN document mentioned there is a flag DOCHOSTUIFLAG_DPI_AWARE
controlling the High DPI behaviour of the web control.
When the flag is set during initialization, the web control uses IE8 High DPI behavior; otherwise, it uses IE7 High DPI behaviour by default.
Under IE8 High DPI behaviour, the parameter zoom factor means exactly the scaling percentage of the web page, just like what you see in the IE zoom UI.
However, under IE7 High DPI behaviour, it's a little bit more complicated. Based on my experiment result,
the actual scaling factor = zoom factor / system dpi(%)
For example, under system 120dpi(125%), setting zoom factor 125 result in 1.0x scaling of web pages.
However, there is still something I can't explain: under system 120dpi(125%), I was expecting to get 80% scaling of web pages when I set zoom factor of 100. It turns out that words are 80% of their original size, but the pictures still 100%. Perhaps it is a bug in IE7 zooming.