ISO is the international standard used to denote film speed. It has been carried over to digital imaging and all manufacturers now provide the ISO equivalent for the sensors they employ in their camera.
It works on the principle that doubling the sensitivity of the film or sensor results in a doubling of the number. A 200 ISO sensor is twice as sensitive as an ISO 100 sensor.
The ISO rating in a digicam limits the exposure range of the camera because it acts as the base from which all exposure combinations are made.
The smaller the ISO number, the slower the sensor. This means that an ISO 100 sensor requires either a slower shutter speed or a wider aperture than the ISO 200 sensor.
Most consumer cameras have an ISO rating of 100, but some high end professional models offer electronic enhancement of the sensor's sensitivity of up to 1600 ISO.
This can be compared to “pushing” of conventional film.
When film is pushed, it often causes grain to be clearly visible. With pushing image sensors, pixelation or color shifts may increase and become visible as noise in an image.
Although with manufacturing processes getting more advanced all the time, quality will improve and before long we may have sensors with higher sensitivity with less or no visible loss in quality.