A camera has to make a lot of decisions when you press the shutter button. It needs to determine the brightness of the scene and the distance of subjects in order to set the camera's ISO, aperture, shutter and focus. This all happens within milliseconds. It is these settings that I'll explain in order to give you a better understanding of how they affect your final captured image.

ISO Sensitivity:
A camera's ISO function sets the light sensitivity of the camera's image sensor (this is similar to the speed rating of FILM). ISO settings are often rated at 100, 200, or 400 but go as high as 800, 1600, and even 3200 on some advanced models. A lower ISO setting is used when capturing overly bright scenes, since it reduces the light sensitivy of the image sensor. This is ideal when shooting at the beach, on a ski slope, or under the midday sun. A higher ISO settings is often used when shooting under dimmer conditions (cloudy days, indoors, etc.) since it increases the light sensitivity of the image sensor. As brightness in a scene is decreased the camera tries to compensate by slowing the shutter speed which in turn lets in more light but increases the risk of motion blur. To prevent this, you can increase the ISO or sensitivity of the camera, which allows the camera to select a higher shutter speed, thus reducing motion blur.

Why not just use a higher ISO all the time?

While using a higher ISO setting is often needed to capture images with reduced blur in lower light, it also increases the noise level of the image (In film this is often referred to as "grain"). A lower ISO setting is preferred whenever possible since it helps to reduce this noise or grain.

ISO settings can also be used to help control the shutter speed of a camera while in automatic mode. In order to "freeze" motion in a scene, a camera needs to be able to use a higher shutter speed. By selecting a higher ISO you are allowing the camera to gather more light, this automatically forces the camera to select a higher (faster) shutter speed, which helps to reduce motion blur.

With film, the ISO rating is considered a "speed" rating. ISO 100 would be considered a slow film, while ISO 400 would be considered a faster film. Digital cameras obviously don't use film thus the ISO number corresponds to the image sensor's light sensitivity.

In the above example I set my camera to a fixed shutter speed of 1/200th of a second and the aperture value to f/5.0. I then changed the ISO setting for each photograph to demonstrate how a faster ISO setting can make the camera more light sensitive.

This example demonstrates increased noise (and depth-of-field) in a photograph as you increase the ISO. This example was shot using a Canon EOS-10D which is known to have very little noise at higher ISO's when compared to consumer level digital cameras. As you can see, the photograph on the far right has increased noise (grain) but is also a bit more in focus. I focused and zoomed the camera in on a tree (bottom left corner) which was about 80 feet in front of the garage (window). The higher ISO setting allows the image sensor of the camera to be more light sensitive. It also allows the camera to set a smaller aperture which helps it to achieve a greater depth of field. This is why the Window is a bit more in focus in the photo on the right.