In Digital Photography, ISO, in simple terms, is the sensitivity of the camera sensor to light. The sensor has a base ISO, which is the default sensitivity. Any ISO above that is more sensitive to light. Technically, the increased sensitivity is actually an amplification of the received light, by the camera sensor, the camera software, or both. Changing the ISO gives the photographer more technical and creative control over exposure.
ISO is measured in numbers, typically 100, 200, 400, 800, 1600, 3200, 6400, and so on, with newer camera models allowing much higher ISO values. Most DSLR cameras can be set to fractions of ISO values, such as ½ or ⅓. All other camera settings being equal, each doubled ISO number doubles the apparent exposure.
The advantage of a higher ISO is that, for a given subject or scene, you can use a smaller aperture, faster shutter speed, or shoot in darker lighting conditions, and still obtain a correct exposure or frozen motion.
The disadvantage is that a higher ISO decreases the image quality of the captured image, due to a increased image noise (also referred to as grain), and a lower dynamic range and color saturation. The increased noise is actually caused by a decrease in signal to noise ratio (digital noise from the sensor becomes proportionately larger in relation to the amount of light entering the camera – the signal – and therefore more apparent).
In general, you should use the lowest ISO that you can while still being able to obtain the aperture and shutter speed that you want for a photograph, to keep noise to a minimum and have the best possible image quality. However, if you need to use a higher ISO to obtain correct exposure with the aperture and shutter speed that you want to use, you should definitely do it. For example, if there is a bird in flight and you want to freeze the motion, but the light is not sufficient to support the shutter speed and aperture you need, then you should increase your ISO as needed to get the correct exposure. Having some noise in the image is better than having it be blurry and improperly exposed.
To some extent, you can mitigate noise by using the ETTR technique, which stands for Expose To The Right. This increases the signal to noise ratio, thereby reducing the visible noise – this requires appropriate post-processing of the captured image file.