Choice #2 seems much more inexpensive and efficient. Hence, ISO files are useful for storage and backup purposes.
Another purpose why ISO files are useful is transmission. If you wanted to give you friend the installation disc for Windows10, you would you send him the DVD by mail, or would you rather inexpensively send him the ISO image of the DVD by Google Drive, Dropbox or another digital transmission medium?
Hence, we can see that ISO files are useful for the virtual storage and transmission of physical DVDs and CDs.
Mount the ISO Image
However with new technology, we can now virtualize or mount the ISO image. Mounting is the process of tricking your computer in to thinking that the ISO image has been inserted as a CD or DVD. This allows you to skip the burning of ISO images to DVDs, and skip straight to the good stuff!
For example, by downloading the latest Sims game (legally of course), you received an ISO image called Sims3.iso. What do you do?
You can either burn it to a blank DVD, and then use that DVD to install the game, or you can easily mount the ISO image with Daemon Tools Lite, so that your computer thinks that Sims3.iso is a DVD that has been inserted. Either way, you will then open the DVD, or virtualized DVD and run the setup from there.
So in conclusion, ISO files are a really useful thing in modern day computing. From large companies such as Microsoft, to smaller non-profit organizations, ISOs have become a standard form of DVD/CD cloning. ISOs effectively allow physical devices (DVDs, CDs, Blueray discs) to be converted to a digital form (.iso files) that can be stored and shared, with the option of mounting, making them truly versatile and flexible.