In the context of reversible unfolding, protein stability is defined as the difference between the free energies of the unfolded and folded states, ΔG. That is, as long as we can safely talk about a ‘two state’ unfolding process.
So the greater this difference, the more stable the protein.
Although it is easy to derive the formula that gives ΔG with respect to temperature (see the curve in the figure below) it is much harder, and not always possible, to experimentally determine the two parameters of the formula that differ for different proteins and determine the exact shape of the curve (for an enlightening discussion on thermodynamic stability see the relevant section of this review or the original work of Nojima et al.).
Typical stability curve of a protein (G. Feller, J. Phys.: Condens. Matter, 2010)
Now, the entropy of protein folding in general has two major opposite contributions: the favorable hydrophobic effect and the unfavorable loss of conformational entropy that comes with the protein collapse. Thus when thermophiles have to compensate a smaller entropic penalty, they either have a rather compact or structured denatured state that already isolates the hydrophobic groups from the water or … a more flexible folded state. Or both.