Note: these aren't the definitions you'd find in a book. If that's what you want, then go look in a book. These are they way I would explain the terms to someone. I'd appreciate it if you'd let me know of anything that's misleading or just plain wrong, but I'm not trying to be too strict. Life is tough enough. Sometimes, I may show some sarcasm, though.
The idea was to replace the analog link between your house and the local telco with a digital one. The digital link could carry multiple voice lines, digital data, control signals, and all kinds of stuff over the same pair of wires usually used for a single voice line. It required the telco to put in a special card at their end of your line. At your end, there needed to be a network interface and then you could connect a variety of things to the other side of the interface.
In practice, ISDN prices and install charges were held high and lead times were kept long, so that few people installed it. It is really not a good choice now unless you can't get DSL or you need a reliable, moderate bandwidth connection between two points, like your home and your office, and you can't get it with a regular internet connection. ISDN is a dial-up technology, so with an ISDN modem you can dial directly to another ISDN modem and get up to 128Kbytes/sec of bandwidth. See more here.