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What is ISO?
ISO is one of the three camera settings that control your exposure. If you want to shoot in manual, it's important to understand all of them.
ISO is the measure of how sensitive your camera sensor or film is. It determines how much light needs to enter the camera to create the perfect exposure. It's measured in hundreds (although some digital cameras will let you set it between these number stops). When you buy film, one of the factors you choose is that film's ISO. It is set and cannot be changed. So if you are shooting a roll of film at ISO 100 and want to change to 400, you have to change your roll of film. But luckily with digital, you can easily change your ISO in-camera any time.
How Does it Affect Exposure?
A higher ISO (also called "faster"), is more sensitive to light. Every time you go up a stop, like from 200 to 400, you double the sensitivity of the camera sensor or film. So ISO 400 requires half as much light to be let in the camera for a good exposure than ISO 200.
If you have a very dark scene (such as a dark room), you probably will need to set your ISO higher. That way it will require less light to get a good exposure as your sensor will be more sensitive.
If you have a very bright scene (such as outside on a sunny day), you probably can set your ISO lower. This will require more light (which you have plenty of) to get a correct exposure as your sensor will be less sensitive.
Is That It?
Nope! There is a trade-off to consider when you use ISO. The higher your ISO, the more grain (for film) or noise (for digital) your image will have. Less noise or grain is generally considered a better quality image. Noise looks like film grain, but can have more discoloration and is considered less appealing.
Below is an example of an image I took on black and white film where you can see the grain. You can tell that so much grain makes the image a little less clear, but film grain has a cool nostalgic and organic texture that some people like.
If only digital noise could be as cool! Fortunately, professional digital cameras handle high ISOs really well, and there are things you can do in post-production to minimize noise. But lower ISOs will always have more clarity and less noise.
Here is an image shot at ISO 100:
Here is an image shot at ISO 3200:
It's hard to tell the difference if you're looking at small images. But when you zoom in, you can really see the noise on the ISO 3200 image compared to the clarity of the ISO 100 image. There are post-production tools you can use to minimize the appearance of noise, but the ISO 3200 image will never be as crisp as the ISO 100 image.
All cameras handle ISOs and noise differently, so I encourage you to go and experiment with your camera at different ISOs. Zoom in on your images and see what your camera's noise looks like. Have fun!