What does JVM flag CMSClassUnloadingEnabled actually do?

The standard Oracle/Sun VM look on the world is: Classes are forever. So once loaded, they stay in memory even if no one cares anymore. This usually is no problem since you don't have that many purely "setup" classes (= used once for setup and then never again). So even if they take up 1MB, who cares.

But lately, we have languages like Groovy, that define classes at runtime. Every time you run a script, one (or more) new classes are created and they stay in PermGen forever. If you're running a server, that means you have a memory leak.

If you enable CMSClassUnloadingEnabled the GC will sweep PermGen, too, and remove classes which are no longer used.

JVM option -Xss - What does it do exactly?

Each thread in a Java application has its own stack. The stack is used to hold return addresses, function/method call arguments, etc. So if a thread tends to process large structures via recursive algorithms, it may need a large stack for all those return addresses and such. With the Sun JVM, you can set that size via that parameter.