Nikon has had three types of TTL flash designs, all very different and incompatible, which are described here.
The SB-800 and SB-600 are unique flashes, able to do any TTL, TTL-D, or iTTL mode that the camera can do. All other Nikon flash modes have only one TTL mode, so some flash models are obsolete now for digital iTTL, but all can still do manual flash mode on all the models. See the Nikon Speedlight Compatibility chart. TTL on a modern Nikon DSLR will need an iTTL flash. Canon uses ETTL.
Below, we are discussing the current iTTL camera models.
No Manual flash can react to Auto ISO changing. All camera models using Auto ISO always remain at Minimum ISO if a Manual flash is detected present (but remote flashes are not detected). Auto ISO must be Off with Manual flash, else we see surprises of flash exposure changing with ISO. Likewise, all models of the Commanders always force Minimum ISO with manual flash mode.
Auto ISO is compatible with TTL flash, which simply changes its power level for ISO changes to maintain the same metered TTL exposure. The camera can be in Manual mode, but the flash is still TTL.
Indoors, often the ambient level is pretty low level, usually the reason we are using flash. The camera first meters the ambient, and automation sets camera settings to try to expose that ambient properly. Auto ISO is a variable complication.
Flash introduces a couple more factors. Camera modes S and M always use the users selected shutter speed. But for camera A or P modes, the Auto ISO menu has a Minimum Shutter Speed that determines the threshold when falling shutter speed holds there, and Auto ISO starts increasing instead. This Auto ISO Minimum Shutter Speed is not an absolute minimum, shutter speed will have to go lower when Maximum ISO is reached in dim light. There is also another feature called Minimum Shutter Speed with Flash (1/60 second is default, it can be set slower in E2 menu of some Nikon models). This Minimum Shutter Speed with Flash will not go lower with flash (if A and P modes). Camera models do vary in how these two minimums interact, but generally, the fastest Minimum will apply and hold.
This Minimum Shutter Speed with Flash is not related to Auto ISO Minimum Shutter Speed. It just prevents using the excessively slow shutter speed that the dim ambient would otherwise meter.
There have been at least three methods of how Nikon Auto ISO works with current digital iTTL flash, so camera models can act different, depending on age. There is no general answer to how Auto ISO will work with flash, it depends on the camera model. So TTL flash in dim places where flash is needed will see one of these three possible Nikon Auto ISO actions in your iTTL camera (this group A, B, C names are my own made-up nomenclature to call them).
When a TTL flash is recognized as present on older Nikon iTTL DSLR models (D70 in 2004, until the D300S changed in 2009), Auto ISO normally remains at Minimum ISO (regardless of the ambient, which might be dim, but which is why we are using flash instead). Could say that Auto ISO turns itself off if it recognizes a TTL flash is present. However, Auto ISO still can increase, but only at the last instant when the TTL flash limits out at maximum power, and actually needs the help (hotshoe and internal flash, the commander has no communication to do this). You can see this action with a impossibly doomed ceiling bounce attempt at f/16.
Routinely, Auto ISO always only triggers at some extreme of whatever available limit exists. For examples of this available limit philosophy, camera mode S has to hit the limit at the lens widest aperture before Auto ISO triggers. Camera mode A has to limit at the shutter speed in the Auto ISO settings (this intermediate Minimum Shutter Speed menu limit prevents it having to first reach the actual 30 second lower shutter limit). The shutter speed will still go lower if necessary, after maximum ISO limit is reached. In camera mode M with no flash, Auto ISO increases at any aperture and shutter speed not already giving correct exposure (actually, it can also decrease a little below Minimum). With TTL flash (on these older camera models), the ISO holds at Minimum ISO, but the limit changes to be the flash power, so the TTL flash has to approach its maximum power limit before Auto ISO is increased. My own notion is that this is as it should be, we don't want a high ISO when we choose to use flash instead. You can turn Auto ISO off (except not if in camera Auto mode).
Some top models show ISO in the viewfinder, and in this older system, a confusing quirk for Nikon flash is that the Auto ISO value shown in the viewfinder never shows this ISO emergency increase for flash. With TTL flash on, the viewfinder always shows the Minimum ISO setting, with no hint if Auto ISO will trigger (due to insufficient flash power). This ISO requirement is not known until after the TTL preflash, and it could only show a few milliseconds then. But if the TTL flash power would be insufficient, then ISO is increased as needed, and the final Exif data shown on the rear LCD result will show the higher ISO value (in red text) when it has triggered. To see this one time, you can force it by using bounce flash with an impossible f/16.
Then about 2009, Nikon got the idea to allow Auto ISO to go high with TTL flash, first on the D300S. Actually, the camera meters the ambient to set whatever high ISO the ambient needs. I think this change may be related to the concept of balanced flash, TTL BL, which is the Nikon default, with the flash to become fill flash then. In bright sun, Auto ISO is best at the minimum ISO necessary. However, the system cannot use ISO 3200 with flash, which would be really excessive flash exposure. At least minimum 1/128 flash power at 24 mm might be ONLY Guide Number 48 at ISO 3200, which could be usable in some situations, not less than f/4.8 at 10 feet. This leaves no TTL range to deal with things. But ISO is allowed to go pretty high (group B). So at the instant when TTL preflash is metered, ISO is lowered from the ambient value to be a usable flash value. But lowering ISO from the 3200 that the ambient metered and set the camera exposure for, to whatever lower ISO value the flash can deal with... underexposes the ambient. Which is probably good, because incandescent ambient that shows up is orange. And the flash does add illumination. Nikon started adding filter holders to the flashes then though, so we could correct it with a CTO color filter. Forcing fill flash seems to be the plan. Or maybe better, we could always turn Auto ISO off with flash if we knew to do it. The camera will still work without Auto ISO. :) Except Auto ISO is always On in camera Auto mode.
Then Nikon changed the method yet again (fixed it again). Except the internal flash is still the previous group B way, Auto ISO increasing for the dim ambient. But with hot shoe TTL flash, this is corrected, and returns almost back to the "Older" way group A above. Except Auto ISO will increase slightly with external TTL flash, but only to 4x Minimum ISO (two stops), like to ISO 400, which is very reasonable for bounce. Logic and reason won one. :)
The vast seven stop range of the TTL flash mostly only sees ISO 400 then. But if the distance is very short with TTL flash (2 or 3 feet) or a wide aperture, even ISO 400 may be too much, and when true, Auto ISO will be reduced below 400, as necessary. And if the opposite, when and if the flash power is insufficient (for the mode A, P & S flash limits of shutter speed or aperture), the Auto ISO will be raised above 400 as needed. It does seem prudent to turn Auto ISO OFF with flash, and to actually plan for the situation.
Internal flash Auto ISO action in recent Group C cameras
These group C camera models (my own nomenclature attempt) will limit the Auto ISO increase with TTL hot shoe flash to two stops maximum ISO increase, or to 4x Minimum ISO, presumably usually to ISO 400.
A fully powered speedlight (Nikon SB-800 or Yongnuo YN565 class) has 24 mm guide numbers of about:
Full power GN 98, x2 for ISO 400 is GN 196 (feet)
1/128 power GN 8.5, x2 for ISO 400 is GN 17
So these TTL flash can operate over a seven stop range of power level, which at 24 mm in this ISO 400 situation is from GN 17 to GN 196. Which provides for very many common situations, and TTL at these extremes might range from f/16 at 1 foot (at 1/128 power to stop motion in water drop splashes), to f/2.8 at 70 feet (a ball game?). There are charts in the Nikon flash manuals describing these ranges (regarding manual ISO, not Auto ISO). GN for longer zooms could approach up to 2x this 24 mm GN, which both the water drops and the ball game would surely use.
But exceptions exist, due to limitations of maximum and minimum flash power level capability.
Suppose we try f/4 at 24 mm at ISO 400 (and I did try it).
If at 6 feet, this is GN 24, and it uses the ISO 400, at very low power.
If at 3 feet, this is GN 12, which the flash at 24 mm cannot do, even at 1/128 power. So the camera used ISO 200, out of necessity.
Suppose we try f/22 at 22 feet. This is GN 484, but the flash at 24 mm can only do GN 196 at ISO 400. So it used ISO 1400, out of necessity. Technically the camera meters the TTL preflash instead of using guide numbers, but the guide numbers give us humans a clue about the capabilities and possibilities. And there are differences. The TTL power level adapts to switching to ISO 1400, but it changes the ambient metered at ISO 400. However, the flash did still illuminate the scene, but differently. How noticeable depends on the scene distances from the flash.
This necessary ISO shift is good stuff, and both the Nikon and the Yongnuo flashes see this same action (deviating from ISO 400 in extreme cases). The camera controls TTL.
Top camera models do show the current Auto ISO value in the viewfinder right beside where it says Auto ISO. But in this situation (when ISO may be modified), it always continues to say ISO 400, even if conditions do switch it to ISO 200 or ISO 1400. Group A cameras (TTL flash at Minimum ISO) also do this too, viewfinder remains at Minimum ISO in group A, except ISO can heroically increase when the TTL flash power is deemed insufficient. These cannot meter and switch until the TTL preflash, so there is no time to affect the viewfinder. But the rear LCD result does show Auto ISO in red.
And Group B (TTL flash at high ISO) also must do it. Obviously Group B cannot do much flash at ISO 3200. Because ISO 3200 GN is 5.67 times IS0 100 GN, or maximum 24 mm GN 98 x 5.67 = GN 555 at ISO 3200, therefore 10 feet would require f/55.5. This does not happen. However, minimum 1/128 flash power at 24 mm might be ONLY Guide Number 48 at ISO 3200, which could be usable in some situations, not less than f/4.8 at 10 feet. So ISO will be pretty high (if ambient ISO is). I assume the same algorithm is used in all models (limiting ISO as necessary). So ISO 3200 is likely reduced some for TTL flash at last instant. Which then ISO also obviously affects the ambient exposure metered at ISO 3200, underexposing it now. However, it is also lighted by flash, so we might not notice much. So, there are unknown things happening. My guess is ISO 400 sees much less degree of change, already with a more reasonable and usable seven stop TTL range.
How does "Auto ISO with flash" work in your model?
This property is not in the specs, but we should know what to expect. It's very simple to determine how your camera model responds to Auto ISO with TTL flash. The LCD Exif data will show the ISO value used, or a few top models will show current ISO in the viewfinder.
Results for hot shoe flashes
So if the flash picture remains at unchanged Minimum ISO, you have the first version A above.
If you still see the high ISO for the flash picture, you have the middle version B.
If you see only two stops increase above Minimum (4x, like ISO 100 to ISO 400), you have the most recent version C.
Being up too close is a problem for this test. If you get ISO results lower than expected, please repeat same thing again, but at 12 feet, or at f/11, or even both, just to be clear.
My own notion is that groups A or C are much better for TTL flash, however we can always turn Auto ISO off (but Not if in camera Auto mode).
Note that the single gray histogram shown on this data screen is the B&W luminance histogram, not real data, which will not show clipping, so it's totally useless in that regard. To see the real actual data, we should look ONLY at the three RGB histograms if concerning clipping (these are shown on a different data screen here).
Repeated again, in any Nikon DSLR camera model, Auto ISO always remains at Minimum ISO (Auto ISO is not used) WHEN the internal or hot shoe flash is in Manual flash mode, and is recognized present, or when using Commander/Remote mode. Manual flash simply cannot automatically respond to ISO changes. With studio flash (or any remote manual flash), the camera does not even know the flash is present (not recognized by the Nikon system). It is absolutely necessary to turn Auto ISO OFF! It cannot be used with manual flash — which cannot respond to ISO changing. We set the power level of manual lights as appropriate, which cannot tolerate ISO changing on its own.
The internal TTL flash is same Auto ISO action for groups A and B, but internal flash Auto ISO stays high in group C. Its lower power probably often needs it.
Manual flash can never increase ISO (assuming the camera can recognize it is present). Manual flash cannot react to Auto ISO changes, so Auto ISO must be turned off (and the camera does that if a manual flash is recognized present).
Likewise, use of Commander in any model never increases ISO, TTL or Manual.
An off camera flash, or a flash brand that is not recognized present by the camera, will not prevent Auto ISO increases. Auto ISO must be turned off to use manual flash.
So when indoor flash discovers that it is dealing with high ISO, we can simply turn Auto ISO off, and set what we want. The camera will still work if Auto ISO is Off. :) There are times it is best turned off.
Otherwise, if Group B Auto ISO is on indoors, the camera exposure automation will fully meter for the (probably orange incandescent) indoor lighting. So then we have to use Incandescent white balance to correct for it. But then the white fill flash will appear very blue, so then we need an orange CTO filter on the flash head. Or instead, we can simply turn Auto ISO off, and use Flash white balance normally. The camera really will still work fine with Auto ISO turned off. :) Bounce flash at ISO 400 with Flash white balance is likely the very best choice anyway.