Aargh! Somewhere buried in the posts of the last week or so (I think) was a discussion of RAW files, native ISO, how digital cameras read the data, etc. etc.
Now I can't find it. But, at any rate, it was way more technical than I could follow. I'm wondering if some of the more technically-minded participants might be able to give us non-techies a simplified explanation of what they were talking about and why it matters (if it does indeed matter).
When I go out to take pictures and set my 7D to ISO 400 (hey! I shot Tri-X most of my life) and shoot RAW am I really setting the ISO to 400 or am I making some compromise that I am not aware of. And, should I care?
There ARE some very specific caveats about ISO settings when it comes to Canon that do not apply to other sensors (namely, Sony sensors). Canon uses a base/push/pull approach that can really throw you for a loop. First, the base ISO settings, i.e. 100, 200, 400, 800, etc., are the only true "native" ISO settings with Canon cameras (1D X and possibly future gear excepted, they have likely moved to a different approach now). Intermediate settings, such as 125, 160, 250 320, etc. are either "pushed" or "pulled". High ISO settings can be a complex mosh of a variety of methods to achieve the final result.
Every increase in base ISO setting is going to have an impact on DR, usually about 1 stops worth, but its never quite that cut and dry in the real world. This is because you are amplifying the analog signal beyond the lowest native setting of 100 on a scale that has a hard cutoff once you surpass the maximum limit (i.e. 12 bits of luminosity), where your DR should (theoretically) be at its highest. The lower dynamic range may pose problems with clipped highlights if you are not careful. Technically speaking, this should be true for every camera, not just Canon, simply as a matter of physics.
When it comes to ISO 125, 250, 500, etc. those are all "push" settings. Its the base ISO with a +1/3rd stop of in-camera digital "overexposure". When it comes to ISO 160, 320, 640, etc. those are all "pull" settings. Its the base ISO with a -1/3rd stop of in-camera digital "underexposure". This is why some settings on Canon cameras appear to have higher noise than higher ISO settings (i.e. ISO 500 tends to be a bit noisier than ISO 800), and why some settings appear to have lower or similar noise as lower ISO settings (i.e. ISO 320 can be as clean as ISO 100). When it comes to really high ISO settings, such as ISO 3200 or 6400, the story is even more complicated. You end up with several stops of standard analog amplification to ISO 1600, then one or more additional varieties to increase ISO beyond that...you may end up with some additional but less effective analog amplification as well as some digital boost. This is usually why moving from ISO 1600 to ISO 3200 usually results in a LARGE increase in noise, where as moving from ISO 800 to ISO 1600 or ISO 400 to ISO 800 results in a more reasonable increase in noise.
The information above is based on a great post by Daniel Browning on the Canon Digital Photography Forums: http://photography-on-the.net/forum/showthread.php?t=1081982. You can also see the effects of Canon's (probably flawed) approach to ISO settings in this Vimeo video: http://vimeo.com/10473734. For comparison, the D7000 uses one of Sony's newest sensor designs that seems to do a more consistent job with gradually increasing noise: http://vimeo.com/26211959.
Hopefully, the visual examples will clarify the nitty-gritty technical stuff that you were not able to understand from whatever you were reading before. As for whether it matters, overall, mostly no, but on some level, maybe. Noise and the amounts of it tend to be way overblown most of the time. The more we push resolution, the less meaningful noise becomes. If you double the resolution of a sensor, and pixel peep an image from the previous vs. the one from the second...the second will likely "appear" noisier...however there are twice as many pixels, and the apparent noise of every 2x2 block of pixels from the higher resolution represents a single pixel from the lower resolution sensor. Scale down the larger image to the same size as the smaller, and the noise characteristics will likely be the same. The scaled-down larger image could very likely appear LESS noisy, as downscaling has the effect of absorbing small-scale undesirable artifacts. Print is similar, and in a sense, a certain amount of noise is actually USEFUL in print. Print is often as least three times to as much as ten times as dense as a computer screen. Any amount of noise that may be visible at 100% crop on a computer screen with 72-100dpi is likely to be entirely invisible in print at 300-720ppi. A perfectly smooth gradient will usually posterize (create visible banding) in print, but a bit of noise or film grain will usually eliminate any posterization.
One area where higher ISO settings could matter is dynamic range. Every full stop of ISO increase usually means you lose about a stop of DR. With Canon's approach to ISO, you may also lose an extra 1/3rd stop if you are using a push or pull setting, possibly more if you are shooting above ISO 1600. A lot of stuff we photograph doesn't need huge dynamic range, and for the things that do, such as landscapes, we can usually get away with much longer exposures and lower ISO settings (half the time, a long exposure is required for artistic effect...such as long water exposures.) If you need both maximal dynamic range and high sensitivity, then you very likely ARE making a trade-off, and you should be aware of the consequences, as it may affect your ability to get the shot you want.
I wouldn't worry about normal ISO settings...the noise we see at ISO100-800, and for newer cameras even ISO 1600, is pretty much a non-issue in real-world scenarios. The only time noise can really become a problem is when you have to use a higher setting like ISO 1600, 3200, maybe even 6400...and you simply don't have enough available light to really get a full exposure. (I have this problem a lot as I shoot wildlife like elk and deer, and birds, and they usually come out to feed right as the sun sets. The very dim light usually means I have to use ISO 3200 or even 6400, and am unable to fully expose the sensor at the shutter rates necessary to capture the action. You can have the same problem indoors with lenses with small maximum apertures, such as f/5.6.) Noise can become a real problem at that point, and it doesn't really matter what camera brand you use. There are solutions to those problems to, though. You can use flash to produce more light, find ways to increase the available lighting, find ways to reduce the necessary shutter speed (i.e. IS/VR lenses), etc. Dynamic range can really suffer at higher ISO settings, especially if you available light and shutter speed requirements are limiting your ability to fully expose and maximize the use of the sensors available DR.
I have no idea what Mr. Wizard is talking about and no way I'm reading something that long on a message board, but for shooting video use ISOs that are multiples of 160. I've stuck with throughout all my shoots and the results are definitely better. This is well known so someone may have mentioned it, but I think it goes against what this guy is saying.