No matter which of four possible sides the iPhone 4S Home Button is held when you take a still picture or a video file, you see it on the view screen right side up before, during and after the picture or video is taken.
The hardware saves the jpg or the mov file in a coordinate system based on the sensor, not based on the world outside the camera, and also saves a single digit number in the associated metadata for the image file that image viewing software ( on your computer) uses to perform a large matrix multiplication to rotate the image, if needed, into right side up in the real world coordinate system.
Because this computation effort is beyond that available in large Canon or Nikon cameras, or an Apple iPhone 4S it is done on your computer when you use some image software by Apple or Adobe. The math all takes place when you open the file. If you perform a "Save" or a "Save As" operation the rotated image is saved and you never even know it has taken place. ( Unless you were aware of EXIF image rotation metadata)
Suppose you send you jpg or your mov file from your iPhone to someone by email? Or send the file to any number of commonly used destinations. The rotation from the camera sensor coordinate system to the real world coordinate system has not happened.
A picture taken with your iPhone 4S wiill be seen by the recipient ( if they have EXIF ignorant software to view the image) as being right side up, upside down, or sideways, depending on the four possible locations of the Home Button.
There is no choice of sensor coordinates that satisfies all four possible sensor orientations. There is enough memory and computational resources to show the image right side up in the view finder, both jpg still images, and mov video images, but not enough to manipulate the whole file when it is being saved in the camera. Perhaps some years from now there will be so much computation power in the camera that on camera image rotation will be possible, but not in the near term.