Depth of Field
Out of focus, stylistic, depth of field blurring is applied during in-game cinematics and scripted moments, in select instances when in third person in social spaces, and when aiming down sights, as shown below.
Under the hood, Low is applying a basic, low-cost blur filter, while High and Highest are applying a cinematic-style Bokeh depth of field effect to the entire screen, greatly improving the quality of the out-of-focus blurring.
To create the Bokeh depth of field effect, the scene is sampled to make accurately-blurred detail. For example, if there is a yellow light you wish to apply Bokeh DoF to, you sample the scene to make a hexagonal yellow shape (or whichever shape the developer selects), and apply it on, over or near the original light source, whilst generally blurring out the background. Depending on the number of samples taken, the Bokeh DoF shape could be a rough approximation of the original light, or a sharp near-perfect recreation.
On Highest, Bungie boosts the sample count by 200% in both gameplay and cinematics, greatly improving the accuracy and fidelity of out of focus detail. Compared to High, that's a 100% increase in cinematics, and a 150% increase during gameplay.