You can consider it a volume control for light.
Raising the ISO setting from 50 to 100, will cause the image sensor to be twice as sensitive to light.
Raise it from 100 to 200 will increase the sensitivity to twice what it was. etc, etc.
This is similar to using higher speed film in film cameras.
But without actually having to change film.
A major convenience.
When you raise the ISO setting you also raise the noise level. Noise will appear in the photo as a grainy appearance in darker areas of the photo.
Here is a link to a write-up on the subject:
http://www.dpreview.com/learn/?/key=sensitivity
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I really don't know what it means. I got a Canon SD450 and I bumped up the ISO setting all the way to ISO 400 and all it did was made the picture brighter.

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