Installing and repairing Windows operating systems requires access to known, good, working, and virus-free installation, image, and supporting files. Typically, such collections can run into the tens or even hundreds of thousands of items, all organized within a complex hierarchy of file directories (folders, in Windows-speak).
That probably explains why the ISO format, originally developed to capture the contents of an entire optical disc (such as a CD, DVD, or even Blu-ray platter), makes a great container for something as big and complicated as Windows.
