ISO is a virtual CD format. This means that ISO files are electronic backups of physical disks such as DVDs or CDs. VLC is a free media player program. If you want to convert video files you play with VLC into an ISO, you must first burn a CD with free tools on Windows Explorer. Then use a free ISO program (a number are available online) to get the ISO file you want.
Insert a blank CD into your CD drive.
Click "Burn files to disc using Windows Explorer" in the auto-play screen that pops up.
Click "With a CD/DVD player" in the "Burn a Disc" dialogue box. Click and drag the VLC files you want to burn in the folder that appears. Click "Burn to disc" on the toolbar. The CD ejects when it's done.
Reinsert the CD. Download and install one of the many similar ISO programs (see Resources). Click the "Copy" button in the program and select the CD you inserted. Click "OK" to copy the CD full of VLC files to ISO.