The term "modular router" does not describe any particular product or its vendor - it simply describes a router that you can extend with certain components, such as interfaces, encryption accelerators, sound processing modules, etc.
ISR routers are a particular line of Cisco routers, namely, 800, 1800, 2800, and 3800 series. Most of these routers are modular, however, some are not - notably the 800 series. So there is no equivalence between ISR routers and modular routers at all.
One of my friend told that Modular Router and ISR router, both are same.
In addition to Peter's post, the statement above is not entire true nor false. Let me explain:
The term modular, as what Peter has described, is akin to a Lego set. You "attach" (or in the case of routers, you install) some selective component of your choice. This was a "lesson" learned by Cisco during the life of the 2500 routers. Instead of making numerous models (and some don't sell even though they have studies to prove otherwise) they created a model that will be "customized" with various component. With this came the first "modular" routers, the 2600 and the 3600.
Now you can't consider or even call the 2600 or the 3600 "ISR". What separates the first "gen" of modular routers, the 1.5 "gen" routers like the 2690 and the 3700, from the ISR G1 is that the ISR G1 (except for the 800-series) has alot more WIC/HWIC and NM/NME modules compared to the older and slower siblings. ISR G1 (again, except for the 800) supports Compact Flash cards (like the 2690 and the 3700).
Re: Difference between Modular Router and ISR Router
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The old (ancient?) 25xx and 4x00 router series, show the difference between non-modular and modular routers. (NB: most large chassis routers were/are modular too.)
The subsequent ISR (Integrated Services Router) series, extends using modular components beyond just interfaces. For instance, you can add an encryption AIM or voice AIM on some, WAAS/WAFS accelerator module, etc. Since some of these components, and the IOS, can do more than switching/routing, hense "Integrated Services".
NB: Didn't intend to overlap with Leo - as I was typing above, before he posted.
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