Quote: Now, without flash if the Iso is increased then this is indicated in the viewfinder. However, with flash the Iso does not seem to increase - maybe with flash it doesn't need to?
It's possible then that the flash overrides the AutoISO setting. The flash is very bright and will satisfactorily illuminate the subject - as long as it's within range - without recourse to ISO increase though your background exposure may suffer. It's also possible that with flash enabled the AutoISO only comes into operation if the metering pre-flash determines that the subject is outside the maximum range of the flash at the indicated ISO setting - in this case you wouldn't see the ISO value change as the pre-flash happens milliseconds before the actual exposure, the only way you'd know is to check the image info either on the review screen or via the EXIF info on your PC. IF the ISO was higher than the finder said then the AutoISO function has operated.
Quote: I didn't know the meter was reading ambient light, have to say thats a little confusing.
TTL metering has always only been able to measure the ambient light. In the days before TTL flash metering you had to meter the ambient light then set your flash output manually. When TTL off-the-film flash metering and dedicated TTL flashes came along this made life so much easier as the camera meter actually measured the small amount of light reflected from the film surface during the exposure and shut the flash off as soon as the correct amount of light (flash and ambient) had been received. When digital came along it was discovered that the sheer reflectivity and and nature of the reflective surface made 'off-the-sensor' TTL unreliable so the digital system uses a preflash fired milliseconds before the main exposure and measured by the normal metering system. The net result is the same as the film method by and large.
Quote: The flash is in-built and set to TTL, so I guess the camera will adjust the flash exposure to correctly expose?
I believe so or at least as far as it can within the limited range of the on-board flash. The flash probably only has a Guide number of 12metres at ISO100 - this means that at f2.8 and ISO100 the maximum flash range is 12/2.8 = 4 metres (approx) and IIRC about twice that at ISO400
Although it deals with Canon EOS systems Nick Guy's Flash Photography explains a lot about the basics of how flash photography works these days - most of which will be broadly applicable to the Nikon systems too.
Quote: Jeez, this flash thing is confusing especially for a newbie to DSLR's like me!
Far less than it used to be. Nowadays to some extent all you need to do for basic flash is to turn the flash on and shoot, the camera takes care of all the tricky bits while you get a good exposure(within the limits of the flash of course). Previously you had, as I said, to manually set the flash power and if you go back far enough you actually had to use the flash guns guide number to calculate your require aperture from the focus distance indicated on the lens!
The downside is that if the automation is fooled by something it's often much harder to figure out what went wrong and how to compensate for it...