The ISO setting on your camera refers to the film or sensor's sensitivity to light. You can change the settings on your camera to make the film or sensor very sensitive to light through to not very sensitive to light. The lower the ISO number you select, the less sensitive to light it will be.
PART 01 Setting the Film Speed
When using film photography, the film you place in the camera will come with its own film speed. When you load the film into the camera, you should select the corresponding ISO setting. So when the film you are using is 100 ISO, you should also change the ISO setting on your camera to 100. When using a digital camera, you can select a different film speed for each individual shot. Being able to change the film speed on your camera lets you match the sensitivity of your film or sensor to the amount of readily available light. When there is low light and you can increase the film speed (larger number), to capture more light if you don't want to change your aperture or shutter speed settings. When there is lots of available light, you can set your ISO setting much lower (smaller number). However, changing the film speed also changes the 'noise' or 'grain' of your photographs. The faster the film speed (the larger the number) the grainier your photos will appear, and the slower the film speed (the lower the number) the smoother your photographs will be.
PART 02 Grain/Noise
It's difficult to see this change in grain or noise when you look at the photo on your camera's LCD screen, however once you get them onto your computer or print them, it will become noticeable. If you don't need to print your images on a large scale, then you can get away with a larger film speed. Here's an example of a series of photographs, taken one after the next, each with a different film speed, from ISO 100 through to ISO 1600.
In general, its better to use the lowest ISO setting possible, for a smooth photograph, unless you are looking for a grainy, noisy texture. This is what your camera chooses for you when you have it on automatic.
PART 03 Working with Aperture, Shutter Speed and Film Speed
The film speed works in conjunction with the aperture and the shutter speed. You can adjust your camera's aperture and shutter speed to allow for a lower ISO setting to be used. If you don't need a large depth of filed (with everything in focus) then you can increase your aperture (smaller number) to help let more light in. If you are using a tripod, then you can increase your shutter speed to let light in for longer. Both these options will allow you to lower your ISO setting and this will give have a smoother finish to your photograph.
Don't forget to check your ISO setting from when you last used your camera; it can be disappointing to have a grainy shot when there was plenty of light available!