Ishta-devata literally means chosen deity, and the choice is real: a Hindu household, lineage or individual settles on Vishnu, Shiva, one form of the Goddess, or another deity as the primary object of worship, prayer and meditation, distinct from every other deity the wider tradition also honors. What keeps this practice from splitting Hinduism into rival, mutually exclusive cults is the doctrine standing behind it, most fully worked out in Smarta Advaita Vedanta but assumed well beyond it, that every named form is a face turned toward the worshipper by one underlying reality. A Vaishnava who takes Krishna as ishta-devata does not thereby deny that a Shaiva neighbor's devotion to Shiva reaches something real; the traditions differ sharply on which form is, in the end, supreme, but the mechanism by which an individual settles on one form for daily practice is shared across them.
The choice is rarely arbitrary. It is commonly inherited through family lineage, tied to a regional or caste tradition, given formally by a guru at initiation into a mantra, or settled by a vision, dream or life event read as a sign. Once settled, the ishta-devata becomes the practical center of a person's religious life, the deity whose image sits on a home shrine, whose name is repeated in japa, whose festivals are kept with particular care, even while the wider pantheon continues to be honored in its own right. The concept is what allows a tradition with thousands of named deities to function, for any one worshipper, as a religion of sustained, personal devotion to one god.