Unlike the aperture and shutter, ISO does not physically control the amount of light hitting the sensor. It controls how sensitive the sensor is to light. It's similar to our skin and tanning. Some people's skin is not very sensitive to light. They can sit in the sun for a long time to achieve the perfect tan. Some people have really sensitive skin. When they go tanning it takes very little time to go from no tan to sunburned. Similarly, if a camera is set to a low ISO then it takes a longer time to get the correct exposure (tan). If it is set to a very high ISO then it takes very little time to achieve the correct exposure (tan). The lower the ISO, the longer the sensor must be exposed. In either case, if the shutter is open too long, then the image will be blown out (sunburned) and unusable. It's important to select a good ISO that gives us the perfect exposure (tan).
Generally the ISO on a camera starts at 100. Most of the time it's also the base ISO or the ISO that the sensor is naturally at. Every time the ISO doubles the exposure increases by one stop. So most cameras will have ISOs of 100, 200, 400, 800, 1600, etc. The ISO does not increase forever. It varies by camera how high the ISO goes. The reason being, the higher the ISO the more noise is introduced into the image. Don't know what noise is? See below.
Both of the images above are cropped and blown up to emphasize the noise. The image on the left was shot at a much lower ISO and therefore has much less noise and distortion. The amount of noise that cameras have varies. With my first point-and-shoot I wouldn't use above ISO 400 because the images had too much noise for my taste. With my current camera I have no issue with shooting at ISO 3200. That's a big difference. It means I can get great images inside with a couple lamps on. That's not possible with a point-and-shoot.
The other sacrifice you make with higher ISO is dynamic range. I'll go into dynamic range in detail later on, but know that it's the cameras ability to maintain detail in the highlights (the bright areas) and shadows of an image. That's a sacrifice that we have to be cognizant of when shooting at high ISOs.
Remember that low ISOs are better. When you raise the ISO the image quality decreases because you increase noise and reduce detail.