Hey there WBW!
ISO is a throw-back term from film cameras. With film, ISO is the same as "film speed". Remember the little boxes of film, how they'd have a number (ie: 100, 200, 400, 800, etc.)? that's the film's ISO, and it's basically referring to how sensitive the film is to light. A higher # means it's more sensitive, which means that you can shoot in lower light.
The same rules apply to the digital world. Which ISO you choose is based upon the lighting conditions that you are shooting in. If you're shooting your kids at the playground on a nice sunny day, you can use a lower ISO, such as 100 (b/c it's nice and bright). If you're taking shots of your child blowing out his or her b-day candles in a dimly lit room, you'll want to bump that ISO right on up to a higher # (800 range).
hope this helps, have fun