>Question 1. Now with digital sensors, the technical ISO
>adjustment allows us to compensate for the lack of film
>'speed'. How does it do that... technically? What actually
>happens or is adjusted within the camera? Is it the
>sensitivity or density of image distributed on the sensor that
>gets changed by the ISO value....which is why it is more
>Question 2. We also have an EV button on the top of the camera
>that let's us adjust the exposure to lighten or darken the
>recorded image, regardless of the A,S or ISO settings. I
>believe this adjustment actually affects the meter by changing
>shutter speeds in A priority for example...but why do that? is
>it an 'auto' way to do 'manual settings??
You got a lot of explanations...I figured one more can't hurt!
In both film and digital photography, ISO represents the reaction to light. With film, this is called the Sensitivity of the film. With digital, this is called the Responsivity of the imaging system.
With film, the ISO represented a level of density. So if you set a specific shutter, aperture, and shine a specific intensity of light through the lens, the film will react by a certain amount. ISO defines that amount. Films with high ISO react more than films with low ISO (and so, films with a low ISO need more exposure to reach the same density.)
With digital sensors, there's no chemical reaction as with film. The sensor, simply "collects" the photons that fall on it, and ISO makes no difference. ISO is applied after collection. When the signals are transferred out of the pixels, they are amplified based on the ISO selection. So if you set a high ISO, the camera will adjust the meter accordingly; when you take your shot you won't collect much light; and when the collected signals are transferred from the pixels, the signals will be amplified to levels similar to that of a low ISO capture. However, as we know, there will be more noise in the image. Noise depends on the size of the captured signal. Small signal, more noise...large signal, less noise.
Noise is a statistical thing. It's equal to the square root of the signal. So a signal of 1 has a noise value of 1, signal of 4 has noise of 2, signal of 16, noise of 4, signal 100, noise of 10, and so on. As you can see, the larger the signal, the smaller the percentage of noise. That's why we want to shoot at low ISO and collect more light.
To quote you, yes, it's "an 'auto' way to do manual settings." However, to view it in that way is a misunderstanding of the control of exposure. But first, the direct technical answer...
How do the 4 variables work together? First lets correct one of your variables. There's A, S, ISO, and...not EV...but light...either luminance (reflected from an area) or illuminance (from a source.) This is why I dislike the Exposure Triangle...it leaves out light.
Exposure Value is an important term to understand. It has two meanings. First, EV is a combination of aperture and shutter. Second, EV is a combination of ISO and light. Now here's where it comes together...when the EV of aperture/shutter equals the EV of ISO/light, you have Standard Exposure.
When you are in M mode, the center of the meter represents the EV of ISO/light. The current position of the Exposure Indicator represents the EV of aperture/shutter. When you move the Exposure Indicator to the center, you have Standard Exposure. But the meter can be fooled by, say, a bright snow scene. So in that case you move the Exposure Indicator to a position, such as +2, on the meter to correct the exposure.
When using auto modes, the camera performs the step of setting Standard Exposure. That is the "auto" of auto modes...and that's all they do. They continuously set Standard Exposure. In order to control exposure for that snow scene, the Exposure Compensation function is used. By applying +2 EC, the EV of the ISO/light combination is shifted by 2 EV.
And now, finally, the answer to your question...how does EC relate to the three settings? It doesn't. The job of EC is to shift the EV of the meter. The camera, now having a new EV to work with, will do whatever its current functionality would normally do with such an EV.
It is important to not take the view that, for example, "in A mode EC shifts the shutter speed." Well, normally yes. But if you have AutoISO enabled and the shutter speed is at your Minimum Shutter Speed already, then apply EC may increase ISO instead. That's because EC doesn't control the camera...it only affects the meter. The camera simply does what its settings tell it to do based on the adjusted meter reading.
Another interesting thing to note is that Nikons are designed so that control of exposure in M mode requires the same process as control of exposure in auto modes. In M mode, if you want +1, you adjust your settings until the meter indicates +1. In auto modes, if you want +1 then you press EC and apply +1. The "meter" in the viewfinder will now turn on and show you +1...exactly like M mode. And there's more. If you were to enable Easy EC, which puts EC on the unused command dial when using auto modes, then control of exposure between M mode and auto modes is practically indistinguishable...that is, the command dial movements turn out to be practically identical.
This is why i say to not look at as a manual way to control exposure, because adjusting exposure in M mode can just as easily be seen as an variation of auto-mode exposure control. It should also be clear that you have just as much control over exposure with auto modes and you do with M mode. They're simply different ways to control the camera...each mode to be used when it is most appropriate for the current application.