An ISO image (.iso) is an informal term for a disk image of an ISO 9660 file system. More loosely, it refers to any optical disk image, even a UDF image.
As is typical for disk images, in addition to the data files that are contained in the ISO image, it also contains all the filesystem metadata (boot code, structures, and attributes). All of this information is contained in a single file. These properties make it an attractive alternative to physical media for the distribution of software which requires this additional information as it is simple to retrieve over the Internet.
Some of the common uses include the distribution of operating systems, such as Linux or BSD systems, and LiveCDs.
Most CD/DVD authoring utilities can deal with ISO images: Producing them either by copying the data from existing media or generating new ones from existing files, or using them to create a copy on physical media.
Most operating systems (including Mac OS, BSD, Linux and Windows, with third-party tools) allow these images to be mounted as if they were physical discs, making them somewhat useful as a universal archive format.
Console emulators, such as ePSXe, and many other emulators that read from CD/DVD, are able to run ISO/BIN (and other similar formats) instead of running directly from the CD drive. Better performance is achieved by running an ISO since there is no waiting for the drive to be ready and the hard drive I/O speed is many times faster than the CD/DVD drive
The .iso file is a digital copy of CD contents made this way: the ripper searches for the sectors of the CD that have been used, say 251,000 for instance (there are 330,000 sectors on a 74 min CD and 360,000 sectors on an 80 min CD). Each sector is copied on the .ISO file, one by one, and only 2048 bytes for each sector (only the ones containing the user data) are copied. The .ISO file should then be of size 251,000 x 2048 = 514,408,000 bytes. (It will be slightly bigger if the extractor puts a header on the file, like Nero .NRG files that are .ISO files plus a small file header)