The ISO standard the ISO files are based on is the ISO-9660 standard.
Much more information is saved this way than simply copying files from one disc to another where important information like the disc header information can get lost. These copies can function as backup CDs since they do not differ from the originals regarding content.
ISO files are used to create exact copies of CDs, DVDs, or other media saved on discs like a CD-ROM. The content of the ISO is an exact copy of the content of the original DVD or CD the disc image was created. ISO is the most common disc image format for both CD and DVD.