It is widely believed that the intermediate ISO settings on some Canon cameras are created by digitally pushing or pulling the nearest 1EV exposure. That is, the ISO 125 setting is digitally pushed, meaning that the image noise is slightly increased compared to ISO 100. It also means that there may be a loss of dynamic range in the highlights. Conversely ISO 160 is created by using a 1EV analogue signal gain to push the sensor to ISO 200, then digitally pulling the data from the sensor, making it darker, and thus helping to reduce the impression of image noise. By digitally darkening the image in this way, before we even see it, noise,particularly in shadow areas, is also darkened. Many photographers online claim that images from some of Canon’s APS-C DSLR’s look better at ISO 160 than images taken at ISO 125, or even ISO 100. It is all to do with the way that the camera processes the analogue and digital signals from the sensor.
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Looking at the raw images taken on a Canon EOS 7D, with no noise reduction applied and a +5EV increase in exposure applied in Adobe Camera Raw, you can really see how the process of getting the intermediate ISO settings affects the level of noise. The ISO 160 setting actually looks the best of the four images, due to the digital reduction in brightness also reducing noise. For this reason, some photographers on online forums claim that the best ISO settings to use on some Canon cameras are actually those that are a multiple of ISO 160, and not those that are the native full 1EV settings,such as ISO 100, 400 and 800, or those that are multiples of ISO 125.
Of course, the differences here have been magnified, and while they may show some advantage in the ISO 160 setting, in a good, well-exposed image, you would notice little difference in a real-world photo. The general advice for avoiding noise should always be the same: use as low an ISO setting as possible (avoiding the higher extended settings such as Hi1, Hi2 and so on), and make sure that the image has an exposure that is as bright as possible without losing highlights.