Digital Camera: ISO Sensitivity

What ISO denotes is how sensitive the image sensor is to the amount of light present. The higher the ISO, the more sensitive the image sensor and therefore the possibility to take pictures in low-light situations.

• ISO speed affects the shutter speed / aperture combinations you can use to obtain correct exposure.
• 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 sensitivity of the image sensor.
• 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.
• 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. 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 faster shutter speed, which helps to reduce motion blur.
• ISO Settings:

Auto ISO: digital camera automatically sets the ISO speed according the the brightness of the scene, increasing or decreasing the sensitivity. User has no control over which ISO number is used.

ISO 50 – 80: For taking photos in bright light; excellent for close-ups, landscape, and portraits. Produces fine detail and image quality.

ISO 100: For extra sensitivity with little, if any, reduced image quality.

ISO 200: Cloudy and overcast days. Acceptable image quality, with some visible noise.

ISO 400 and above: suitable for indoor photography whether or not a flash is used. Useful for "stop-action" and sports photographs. Most compact digital cameras produce high to very high image noise.

• An image sensor is usually calibrated so that it gives the best image quality (greatest S/N ratio) at its lowest possible ISO speed. For most consumer digital cameras, this value will be expressed as ISO 50, ISO 64 or ISO 100.
• The size of the image sensor determines the ISO speed range that a digital camera can use without suffering from undue noise. One reason for this is because the pixels on the larger image sensor can be larger and therefore receive more light, and thus have a greater signal-to-noise (S/N) ratio.
• If we take two image sensors, each with 4 megapixels resolution, but of different sizes, the 4 megapixels image sensor that is smaller will exhibit more noise at higher ISOs than the larger one.

• Most consumer digital cameras use 1/1.8 in. (and smaller) image sensors, so noise at high ISO is a problem. Though they will allow you to use a high ISO (such as ISO 400), the resultant image will usually be very noisy.
• A digital SLR (dSLR), on the other hand, uses a large image sensor, usually full frame (24x36 mm) or APS-sized (half-frame). Noise is rarely a problem and the use of a high ISO 400 results in images with barely noticeable noise.
• There are some noise reduction software available. So, you can take photos with high ISOand later remove noises using those software.
  

I think you can get more information in the following site :
http://www.digicamhelp.com/camera-features/advanced-settings/iso.php