In the digital photography age, ISO measures the light sensitivity in the image sensor of your digital camera.
Its settings are normally 80, 100, 200, 400, 800 etc. The higher the ISO setting in your digital camera, the more sensitive the image sensor will be to the light - but the noisier (grainier) the image will be.
Here is one way to better understand how ISO works.
When you are asleep in a dark room and someone wakes you up and turns on the light, what happens to your eyes? At this point, they are very sensitive to the light. It's like you are blinded by a little amount of light. Your eyes are extremely sensitive to the light at this point. And you don't need much light to see well. Well, that's equivalent to a high ISO setting - where you don't need much light to expose the picture correctly.
It is also the same when you are outside in a bright sunny day and go inside a house with poor lightning. Your eyes won't be sensitive to the light. You need more light to see well. This is equivalent to the low ISO setting - where it will need lots of light to expose the picture correctly.
What does this means for you?
Well, if you are in a low light situation, then you might want to use a higher ISO. For example, if you want to take pictures of the city at night (flash will be worthless since it's only effective to about 12-15 feet).
The reverse is true, if you are in a bright and sunny day, you want to use a low ISO setting. The pictures will be less noisier (less grainier - which means sharper too) with low ISO settings.
Remember, when you set the ISO in your camera, you’ll impact the aperture and shutter speed to take a well exposed shot. For example - if you increased your ISO setting from 100 to 400, you can shoot at faster shutter speeds or smaller apertures. For this condition, the trade off is that your picture will be noisier.
Another thing to be aware about setting ISO is to know what you are going to do with the picture. If you are using it for e-mails or small prints, then high ISO settings won't have much impact. But, if you want to blow up the picture to a 8X10 inch or a poster size, then you should try to keep it to the lowest ISO possible - you will be able to see the grain in the large image if you take it in a high ISO.
A simple way to see the difference, it's to take your camera and take the a picture with the highest and lowest ISO setting on the same subject. Use your digital zoom in your camera or in your computer and look at particular spot. You will see that the highest ISO setting have more noise than the lowest ISO setting.
Ok, now go take some pictures and keep practicing.
David