What exactly does IOS do?
It is the operating system that runs on Apple's mobile devices. It is the brains of these devices and provides the interface that allows you to do things, like open apps, move them around, control screen brightness, load/remove apps, setup wifi, bluetooth, use the camera, play movies, etc. When you touch the screen, iOS is the software that interfaces with the hardware to make something happen. When you swipe your finger, the device moves to the next home screen. When you long press on an app, iOS allows you to delete apps. When you press home & sleep/wake at the same time, iOS gets the screen shot for you. On and on...
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iOS (operating system) is a mobile operating system developed and distributed by Apple. It is the software that runs Apple's mobile devices, much like Windows powers computers (etc.).
Without iOS, the iPad is an inert but lovely piece of glass and metal - that does nothing.
See this Wiki article for all you ever wanted to know about iOS (and more!): http://en.wikipedia.org/wiki/IOS