The scaling along X or Y axis refers to the "Normal" coordinate setting : Switch the translation gizmo on, set the transformation orientation to "Normal" and mark an edge to which the vertex that you want to scale (CTRL + A) is connected and you will see that the X and Y axis of the gizmo are now perfectly aligned to the edges of the rectangle shape edge loop (provided that no "Subsurf Modifier" is active) around your selected edge.