ISO determines how sensitive the sensor in your camera is to light.
ISO is an acronym that stands for the International Standards Organization.
ISO doesn't allow light into the camera, it simply works with the light that the Aperture and Shutter Speed have allowed in.
It is an expression of how sensitive the sensor is to light.
Typically the sequence is 100, 200, 400, 800, 1600, 3200 to 6400.
Each step between numbers represents a doubling of the sensitivity of the sensor.
Setting a higher ISO will let you capture images in low-light environments without the use of a flash.
As you increase the ISO your image will have added noise or grain.
A good rule to follow is to always look for the lowest ISO you can use in order to get the cleanest file possible.
When working in manual mode, you should always adjust the ISO on your camera first.
WHY ISO?
We use ISO to help us achieve what we want to do with the other two sides of exposure; Aperture and Shutter Speed.
Effectively it works like a Brightness Control on your camera, and you can turn it up higher if you are in a dark room, or out at night.
However, if you are outdoors in Bright Sunlight, then you need to turn the ISO down to a low value, or else your photo will come out all white and washed out with too much brightness.
You may ask; Why don't we just use the most sensitive one and forget about it?
Well because the downside of higher ISO is that it increases the noise or grain in our images. This can sometimes make the image look so bad that it becomes unusable.
So our objective is to use the lowest ISO possible, but balancing that to what we want to achieve.
Recommendations for how you should set your ISO, depending on where you are shooting and what type of light you are in:
ISO 100 - Full Sun Outdoors (no shade)
ISO 200 - Bright Sun Indoors/Outdoor shade on a Sunny Day
ISO 400 - Rainy or Cloudy Outdoors or Bright Interiors
ISO 800 - Late evening, before Sunset or Low Lit Interiors
ISO 1600 - Extremely Low Light, Dark indoor scenes (i.e. a school play, a concert)
ISO 3200+ - Really Dark Room