ISO, short for Isolation, was a form of solitary confinement that shunned all kinds of exterior senses employed by Dr. Wheeler at his ranch. It was employed as punishment for students who would not comply with his program, and had harmful psychological effects akin to torture upon those subjected to it, such as temporary senselessness.
ISO is first mentioned by Sean Miller when Chelsea Cunningham first arrives at Wheeler's ranch, in regards to Adam Stepnik, who is completely unresponsive to her despite Chelsea being a friend of his, and is painting on a blank canvas using a brush with no paint. Sean explains this behavior as being a result of the ISO. It is later used as punishment for a boy in Wheeler's "class" who wants to go back to his room and sleep against Wheeler's wishes, and the boy is clearly terrified, begging Wheeler not to do this and telling him that he will be good.
When Terry McGinnis finds Chelsea after infiltrating the clinic, Chelsea explains to him what ISO actually is -- total sensory deprivation, "no light, no sound". When she tries to describe what it is like, she starts breaking down and begs Terry to get her out of the clinic, having presumably endured at least one session of ISO since her arrival. This proves to be the evidence that Terry needs to have the ranch shut down and the students freed.
When Terry and Sean Miller are captured by Wheeler and Vincent, they are taken to the main ISO chamber of the ranch, which has electronic doors leading to the isolation chambers. Vincent tells Terry to "just think of it as a whole lot of peace and quiet -- all at once." The two of them fight their way out of the chamber with Adam's help, subduing the guards and getting hold of the master keycard that Sean uses to free the rest of the students of the ranch. The practice of ISO is brought to an end when the ranch is shut down by Gotham City police and Dr. Wheeler and his guards are arrested.