On film cameras, ISO indicates film speed. On digital cameras, ISO now indicates the sensitivity setting.
The rule of thumb is to always use the lowest ISO you can (like 100 or 200). The lower the ISO number, the better the quality of the photo.
In a low light situation where you do not want the flash to go off, you may need to raise the ISO to a higher number, like 400 or 800. The trade-off is that while you will not need the flash, the photographic quality may be less than you anticipated.
Just as film would have a grainy look at higher ISOs, digital can develop a grainy appearance and lose some color saturation at higher ISOs.
