An ISO file is basically a CD/DVD-in-a-file so you need to burn it to the relevant media first and then access it from there. Most CD burning software has an option to "burn image" from an ISO file which will create the relevant media. e.g. if you wanted to store the XP installation CD on your PC in a single file for burning back to disk later you could store it in an ISO.
There are tools out there to inspect ISOs and I believe you can even mount them 'virtually' i.e. without burning to disk but they are basically a single file version of an entire disk.
Hope this helps.