In the beginning, long before digital cameras came about, the US had laid down certain standards which applied directly to the quality and graininess of photographic film. The grain was caused by the chemicals on the film’s surface that produced the image when subjected to light. Therefore, they were "light sensitive". The less sensitive to light they were, they received a lower number in the standard range. Of course, the less grainy the film, the clearer and sharper the image.
We only relate Graininess to photographic film, but on digital cameras we can get what is called digital noise. Not unlike the sound you get when you turn up the volume dial on a radio. The louder you go, the more hissing and buzzing you get, but it shows up on your prints as minute, coloured dots and the higher the ISO rating, the more obvious they become. Which in some cases you may not even notice until you have your images up on a bigger screen or have them enlarged.
Back then, the American Standards Association (ASA) numbers would range from say, ASA 25, ASA50, ASA100, ASA200, ASA400, ASA800, etc. These numbers would also coincide with the camera’s shutter speed and aperture settings, but that’s another story.
The body now governing these standards is known worldwide as the International Standards Organisation - hence the ISO rating.
Again, relating to film, on a nice sunny day, ISO400 was accepted as an "average" speed; below ISO400 were "slow speed" settings and above ISO400 were known as "fast speed" settings.
Some higher-end cameras today can go up to ISO3200, although the factory default setting on most domestic quality digital cameras is usually ISO100. When you use your camera in auto mode, it will automatically select what it considers to be a correct ISO rating for the type of photography you are doing.
For instance, if you select 'Sport’ on the mode dial, depending on the brightness of the available light source, it will set a higher ISO number to enable a higher shutter speed, which is required to freeze the action of your fast-moving subject/s.
Some photographers, for artistic reasons, however, don’t really mind the grain or noise, but the higher number will cause some image degradation and cause colours to flatten somewhat.
Now, if you were to select 'Portrait' mode, it will set a smaller ISO number to produce better skin tones and saturated colours, and without the noise.
If your camera allows, you can manually alter the ISO setting to fool your camera into thinking it has more or less light to play with, depending on how you wish to adjust the exposure. For more light, choose a smaller number; for less, a higher number.
In an ideal situation, the smaller the ISO rating, the better quality your photos will be. That is, after taking into consideration all other factors.
See also 'The correlation between shutter speed and aperture settings'
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