You can't set f-stop in camera with an adapted lens. The rest of your stetement is correct.
Hang on, if you can't set the F-stop in the camera, then how will it automatically adjust shutter speed? It wouldn't really know what aperture to base on would it? Or does it just rely on the amount of light coming in?
It's like operating an early SLR with aperture-priority automatic exposure (shutter priority and program modes came later): Set aperture using the lens adjustment collar and the camera varies shutter speed to maintain exposure via the meter.
As I noted before, Auto-ISO (if enabled) will kick in at some point with the E-M10 because the camera will try to keep the shutter speed at or above above a certain level. And, since you have IBIS, you also tell it what focal length you're using so it can provide image stabilization.
It's all a lot easier to do than to describe. But I double-checked my cameras and they do support S mode with manual lenses, regardless of whether that's the best mode to use, so it seems yours is acting oddly.