You can think of the ISO setting in digital camera as how sensitive the sensor is to the light coming through the lens. If you have dim light, then you will want to turn up the ISO setting so that the sensor will be more sensitive to light and gives you a brighter image. On the other hand, in bright day light, you don't need the sensor to be as sensitive, so you can turn down the ISO setting. One problem with high ISO setting is digital noise. So the noise occurs at high ISO setting, not low setting. You will want to shoot at an ISO setting as low as possible to avoid noise. You only turn up the ISO setting if you image is too dark. This is usually the last thing you do to get a brighter image. Try other methods to get brighter image first. Obviously, if you can turn up the ambient light, it will give you a much better picture. That's why studios use bright hot lights. Then you consider using wider aperture or slower shutter speed to allow more light to reach the sensor. And if all these are not adequate, then turn up the ISO. The advantage of digital camera is that you can do test shots at different ISO settings, and review to see which setting is the best.
Typically in daylight, ISO 100 is the lowest setting and gives the best quality image (some camera offers ISO 50). If it is too bright at the lowest ISO setting, use a neutral density filter to decrease the amount of light getting to your lens and sensor. Indoor and low light situations often need to turn up the ISO setting. Again, use the lowest possible ISO setting to give you a bright enough image. Sometimes I need to use ISO at 800 or 1600 if the indoor light is poor or if I'm outdoor at night. How much noise will appear in your image depends on the individual sensor of your camera. Point and shoot camera often has a lot of digital noise at ISO above 400, except the Fujifilm and some other high end ones. Some PS cameras even have noticeable noise above 200. DSLR usually does better at high ISO with much less noise. Canon DSLR does better than its competitors in high ISO performance. Nikon and Sony use similar (if not the same) CCD sensor, but the difference in the final image is Nikon's better noise reduction and control. If noise bothers you, use flash.