ISO is the International Organization for Standardization. One can assume that it was created by dyslectics. There are lots of ISO numbers. ISO 9660 is a filesystem standard for CDs. ISO 9000 is a family of quality management standards.
What you are probably interested in is
ISO 12232:2006. That's the ISO standard for measuring exposure with digital cameras. There are different ISO standards for color negative film used for reflective prints (
ISO 5800:1987), motion picture film, slide film, and others.
ISO 12232:2006 allows for 5 different ways to determine the ISO number. It's not much of a standard as it allows each manufacturer to use the Recommended Exposure Index technique, which basically allows them to pick whatever values they think look best.
Basically, it's just a scale that measures how sensitive your camera is to light. Lower numbers mean that it is less sensitive. Higher numbers mean that it is more sensitive. The scale is linear, so when the ISO value doubles, you need only half as much light to get the same exposure.
Even though manufacturers are free to adjust the scale to their liking, people have common conceptions about how much light is needed for each ISO level, so the levels are reasonably consistent. It's not uncommon to see them vary by a third or even by half, but you won't see ISO 100 from one manufacturer exposing like ISO 400 from another.
My approach is to set my ISO based on my conditions. I go with 100 when I am in bright sunlight. I switch to 200 when it is lightly overcast. I use 400 when it is very cloudy or I am in a well lit indoor location. I use 800 when I am in an indoor location that is not too bright. I use 1600 when I am in a location with subdued lighting (like a nice restaurant).
As a general rule, it is best to use the lowest ISO possible. Higher ISO settings result in more noise (graininess). While I am shooting, I set my aperture and shutter speed based on creative needs. For example, I might use aperture priority mode and a wide aperture for a portrait shot. I might use a narrower aperture and a long shutter speed for a fireworks shot. If I can consistently get faster shutter speeds than I need, I lower my ISO to improve my picture quality. If I am struggling to get a shutter speed fast enough for my needs, I increase my ISO. It's better to have a noisy picture than a picture that is blurry because the shutter speed was too low.
The ISO based on lighting settings I mentioned are just guidelines assuming that you are handholding pictures of limited activity. If you are shooting rapidly moving subjects, you may want a higher ISO so that you can get faster shutter speeds. If you are shooting non-moving subjects with a tripod, you may want to use your best ISO, which is usually your lowest normal ISO.
When you increase the ISO, the camera increases the "gain". It's a bit like turning up the volume on your radio. It makes dark pictures brighter. Unfortunately, it also makes "noise" brighter as well.