This used to be the sensitivity of the film that you put in your camera.
The same measurement scale is still used today.
With film, ISO 400 would have been used for overcast conditions & ISO 800 would for sports.
The trade off with a higher sensitivity setting is increased grain within your photograph.
This was true for film and is still true for digital cameras, with improvements being made year upon year.
New top end DSLR's can now take very low noise images up up to very high ISO ranges, into the tens of thousands.
As a general rule, the ISO is best kept as low as possible.
This needs to be within the constraints of the shutter speed required, amount of available light and depth of field required.