If you own a digital camera and a little curious you would definitely not have missed ISO, Though the name sounds so technical this is one of the easiest parameters which you can start controlling , ofcourse in the long run this does not make any difference if not used with Aperture and shutter speed , but nevertheless a good start.
Now what is ISO and why should you bother? In digital photography terms it is how sensitive your camera sensor is to light.
Normally ISO that are supported are 80 100 200 400 800 1600 , Having said that what do those numbers mean ? Do higher number mean better quality ? No! Less is more in this case.
A photograph taken with a Lower ISO is of better quality than that of the photo taken with Higher ISO.Why ? By increasing the Number from 100 to 400 what you are doing is making the sensor more sensitive to light,but sadly it is equally sensitive to noise and thus results in the granularity of the picture.
Now if you have the question as to , Both me and a friend of mine have same megapixel camera and both are taking pictures at same resolution at same ISO but still my pictures look grainier than his/her , Yes that is possible and the culprit is the camera sensor, Bigger the sensor for a given
megapixel better is the quality ie lesser is the noise, so next time you are going to buy a camera please make sure you check that along with the megapixel.
but then if lower ISO is always good and higher ISO bad and grainier why set higher ISO at all, Reason is you will need it in low light conditions,Though the picture appears a little grainy you still will be able to take photos ,better than not taking one right, Also this allows you to control wider range of shutter speed and aperture values thus aiding photography at night/low light.
You may ask why not flash ? using flash against a reflective surface will result in loss of information and unwanted glare,even on regular surface there will be unwanted glare in line of flash portions where as other regions will overly under lit.So rule of thumb is flash is bad unless you have a strong reason to do so.
After all the explanations , What to set ? If the scene is sufficiently lit and please set the ISO to the lowest value supported by your camera (say ISO 80), as mostly the calibration of the sensor would be for lowest ISO.
If the scene is not sufficiently lit whether it is night or indoors or concerts,you higher ISO accordinly and see the best fit , for instance start off from ISO 200 as higher the ISO higher is the noise.
Now that you have taken a night shot with higher ISO and see a lot of grains,there is some post process you can do.
There are some easy tools which are available:
http://ndnoise.free.fr/
http://www.neatimage.net/
But for all the GIMP users ,who dont want to use any other Application, Here is a cool plugin:
http://gmic.sourceforge.net/gimp.shtml
These software's will help in reducing the noise in the Image.