I have canon PowerShot A560 Digital Camera, I just want to know what does the ISO 800/1600 feature do?

This is a feature on many digital cameras including compact cams, it allows you to operate faster shutter speeds in low light conditions. It is best for low light situations where you don't want to use a flash e.g. shooting glass or other reflective surfaces or low light situations where tripods are not allowed (or unavailable). The downside however to using higher ISO settings (anything above 400 really) is that it creates a significant amount of "noise", those pesky little color speckles . By using editing software like PS the amount of noise can be reduced but at the cost of losing image sharpness. If it can be avoided, it's best to stay under ISO 400 and use ISO 100 whenever possible, your images will come out much cleaner, especially when printing larger sizes.

bhavneet s, The ISO setting on a digital camera mimics the traditional film camera where ISO refers to the sensitivity of the film to light. The lower the ISO is, the lower the sensitivity to light and, most importantly, the lowest level of "granularity" in the picture.

If you set your camera setting to ISO 800/1600 you should be able to take picture without flash in low light situations (Inside the house, at night) but be aware that the "quality" of the picture will be affected, it is also referred to higher level of noise or pixelasation. Hope this help

If i'am correct the iso feature lets you control your shutter speed manually.