It's an automatic feature that helps your photos come out right so they aren't super dark. (pretty basic & vague explanation)
Like cannibalized said, it helps you get good exposure in different light settings. Sometimes you want to use a certain shutter speed and or aperture or both. So the only other way to allow the correct amount of light in is the ISO. Auto ISO fluctuates the "film speed" so that you will get a properly exposed shot. Think of it as if you shoot in TV (shutter priority) or AV (aperture priority) modes. If you shoot in either of these modes the shutter speed or aperture will adjust accordingly to the scene you are photographing, ISO shift is not exactly the same but that's an easy way to think about it.
Canon 1D Mark III -- Canon 5D
L Lens Travel Kit = 70-200 f/2.8L IS · 24-70 f/2.8L · 16-35 f/2.8L
Non-L Primes = 15mm Fisheye · 50 f/1.4 · 85 f/1.8 · 100mm Macro
Alienbees lights (6) + Ringlight + Vagabond II
Nikon SB28 (3) · Nikon SB80DX (1) · Canon 580EX (2) · Pocket Wizards (7)
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