Microsoft has a new post up on its Building Windows 8 blog:
ISO files are used by vendors to distribute software. Backup applications also store content in the ISO format and many utilities allow creation of an ISO file from existing CDROM or DVD media. Once created, these files can be sent around, downloaded, and stored just like any other file - however, before you can access the photos, video, applications, documents, or other content contained within the ISO file, you either have to "burn" the ISO file to a writable optical disc or download and install software that allows you to "mount" and access the ISO file contents directly (i.e. without burning). With Windows 8, we have eliminated this last step � you can simply access the contents of the ISO file without needing either needing to burn a new disc or needing to find/download/install additional software just to logically access the ISO.
So how does this work in Windows 8? It's quite simple - just "mount" the ISO file (you can select mount from the enhanced Explorer ribbon or double-click or right-click on the file), and a new drive letter appears, indicating that the contents are now readily accessible. Underneath the covers, Windows seamlessly creates a "virtual" CDROM or DVD drive for you on-the-fly so you can access your data. Let's walk through the flow that will enable you to access such an ISO file.
As you see in the figure below, we have three ISO files in a local folder. The one we will work with contains the (legally obtained) Office application suite. To mount the ISO, you can either double click the file or click Mount on the Actions tab.