vSphere Distributed Switch (VDS) spans multiple vSphere hosts and aggregates networking to a centralized datacenter-wide level, simplifying overall network management (rather than managing switches on individual host level) allowing e.g. the port state/setting to follow the vm during a vMotion (Network vMotion) and facilitates various other advanced networking functions - including 3rd party virtual switch integration (fee-based Nexus 1000v), see Add-Ons.
Each vCenter Server instance can support up to 128 VDSs, each VDS can manage up to 500 hosts.

VDS Key features:
- Distributed Virtual Port Groups (DV Port Groups) - Port groups that specify port configuration options for each member port
- Distributed Virtual Uplinks (dvUplinks) - dvUplinks provide a level of abstraction for the physical NICs (vmnics) on each host
- Private VLANs (PVLANs) - PVLAN support enables broader compatibility with existing networking environments using the technology
- Network vMotion - Simplifies monitoring and troubleshooting by tracking the networking state (such as counters and port statistics) of each virtual machine as it moves from host to host on a VDS
- Bi-directional Traffic Shaping - Applies traffic shaping policies on DV port group definitions, defined by average bandwidth, peak bandwidth and burst size
- Third-party Virtual Switch Support - Switch extensibility for integration of third-party control planes, data planes and user interfaces, including the IBM 5000v and Cisco Nexus 1000v

Enhancements in vSphere 6.0:
- Network I/O Control (NIOC) Version 3
- Ability to reserve bandwidth at a VMNIC
- Ability to reserve bandwidth at a vSphere Distributed Switch (VDS) Portgroup
- SR-IOV support for 1024 Virtual Functions

Enhancements in vSphere 5.5:
- The enhanced link aggregation feature provides choice in hashing algorithms and also increases the limit on number of link aggregation groups
(22 new hashing algorithm options, 64 LAGs per host and 64 LAGs per VMware vSphere VDS, new workflows to configure LACP across a large number of hosts via templates)
- Additional port security is enabled through traffic filtering support based on three types of qualifiers
(MAC source and destination address, traffic types, and IP attributes like source/target IP etc.).
- Prioritizing traffic at layer 3 increases Quality of Service support.
(Differentiated Service Code Point - DSCP - tagging to enable users to insert tags in the IP header in layer 3 (routing) environments. Physical routers function better with an IP header tag than with an Ethernet header tag (802.1p)
- A packet-capture tool provides monitoring at the various layers of the virtual switching stack.
- Other enhancements include improved single-root I/O virtualization (SR-IOV) support and 40GB NIC support.
(Workflow of configuring the SR-IOV - enabled physical NICs is simplified, additionally users can communicate the port group properties defined on the vSphere standard switch (VSS) or VDS to the virtual functions)
- 40GB NIC Support (Support for 40GB NICs, in the initial release the functionality is delivered via Mellanox ConnextX-3 VPI adapters configured in Ethernet mode)

vSphere 5.1 introduced a number of improvements on a) operational b) troubleshooting and c) scalability aspects.
a) Operational:
1) Network health check
2) VDS configuration backup and restore
3) Management network rollback and recovery
4) Distributed port - auto expand
5) MAC address management
6) Link Aggregation Control Protocol (LACP) support
7) Bridge Protocol Data unit filter

b) Monitoring/trouble shooting:
In vSphere 5.1, the port mirroring feature is enhanced through the additional support for RSPAN and ERSPAN capability. The NetFlow feature now supports NetFlow version 10-also referred to as Internet Protocol Flow Information eXport (IPFIX), an IETF
standard-rather than the old NetFlow version 5. This release also provides enhancements to SNMP protocol by supporting all three versions (v1, v2c, v3) with enhanced networking MIBs.

c) Scalability
Number of VDS per vCenter: 128 (up from 32 with 5.0), hosts per VDS: 500 (up from 350) etc.
Details here: http://pubs.vmware.com/vsphere-51/topic/com.vmware.ICbase/PDF/vsphere-esxi-vcenter-server-51-networking-guide.pdf

vSphere 5 introduced three new features in the Distributed Switch that provide enhanced monitoring and troubleshooting capability:
- NetFlow: NetFlow is a networking protocol that collects IP traffic information as records and sends them to a collector for traffic flow analysis.
- Port Mirror: Port mirroring is the capability on a network switch to send a copy of network packets seen on a switch port to a network monitoring device connected to another switch port. This provides intra and inter host network traffic monitoring capabilities.
- LLDP: with vSphere 5.0 VMware now supports IEEE 802.1AB standard-based Link Layer Discovery Protocol (LLDP). LLDP helps management and configuration of heterogeneous network devices from different vendors. Prior to this vSphere already supported Ciscos CDP discovery protocol.
Please note that these new features are not backwards compatible with earlier vDS versions - when creating a vDS you now need to select the correct virtual hardware version of the vDS.