There are actually two kinds of isospin: The name isospin implies a relation to the (perhaps more familiar) spin - that is only partly true. Isospin does not have anything to do with angular momentum, however it has the same mathematical properties as spin. That is where the peculiar rules for addition come from: Spin is a vector. That means if we have two spins we want to add, the result depends on their relative orientation - if they point in the same direction, we get T1+T2, if they point in opposite directions we get |T1-T2|. Everything in between is also possible, but keep in mind the quantization rules.

Now in particle physics you say there is a thing called a nucleon, which has a strong isospin with an absolute value of 1/2. Which direction is it pointed? Well, that depends. You take an arbitrary direction (usually the z direction in our x-y-z coordinate system) and look at the component of I along it. Because of quantization this quantum number I3 (which is a scalar, as opposed to the vector I) can only be -1/2 (if I is pointing 'downwards') or +1/2 (if it's pointing 'upwards'). A nucleon with I3=-1/2 is called a neutron and a nucleon with I3=+1/2 is called a proton.

But a nucleon consists of quarks! A proton is a combination of two up quarks and one down quark, denoted as uud, and a neutron is udd. It turns out that on a deeper level we can assign a strong isospin to quarks as well - the u quark gets I3=+1/2 and the d quark gets I3=-1/2.

We can do the same for leptons. They do not interact strongly, the weak force does affect them though. The weak force is a bit strange, because it differentiates between left and right (see CP violation, or rather parity violation). So we say that the left-handed electron and the left-handed electron neutrino are a weak isospin doublet, ie T=1/2, the electron has T3=-1/2 and the neutrino T3=+1/2. Left-handed by the way means that the spin vector is pointing opposite to the momentum vector. There is no right-handed neutrino (which was indeed a puzzling discovery - but since it appears that neutrinos do have some mass after all, it is no longer strictly true, see helicity conservation), and the right-handed electron gets assigned T=0.

So far so good :) Are you still with me? Now it gets even more confusing. In addition to their strong isospin, quarks have weak isospin too. Because the eigenstates of the strong interaction and the weak interaction aren't quite the same (see Cabibbo rotation and CKM mixing) we have to "invent" a new quark, called d'. But the rest stays the same: u and d' are a weak isospin 1/2 doublet with T3=+1/2 and T3=-1/2 respectively.

So what's it good for, you ask? After all, it seems more than a little arbitrary! Well, it lets physicists formulate new conservation laws and we can use those to make predictions about experiments, eg which particles may be created in a certain reaction. So far, the predictions of the isospin formalism have been right, and that's what justifies it.