Dematerialisation is the process by which physical share certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor’s account maintained with his/her depository participant (DP). It is like having a bank account where instead of money, you hold securities in your account.
How can one convert physical holding into electronic holding i.e how can one dematerialise securities?

In order to dematerialise physical securities held by an investor, he has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical share certificates one wishes to dematerialise. Separate DRF has to be filled for each ISIN Number. The complete process of dematerialisation is outlined below:
Surrender certificates for dematerialisation to your depository participant.
Depository participant intimates Depository (NSDL or CDSL) of the request through the system.
Depository participant submits the certificates to the registrar of the Issuer Company.
Registrar confirms the dematerialisation request from depository.
After dematerialising the certificates, Registrar updates accounts and informs depository of the completion of dematerialisation.
Depository updates its accounts and informs the depository participant.
Depository participant updates the demat account of the investor.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique identification number for a security. India follows the norms stipulates by Association of National Numbering Agency (ANNA) which is the international body for issue of ISINs. National Securities Depository Limited (NSDL) issues ISINs in India and a complete list of ISINs is available on their website: www.nsdl.co.in. Also note that ISIN of a security changes in case of certain corporate action such as split in share par value, consolidation of share capital etc. Hence you have to quote the correct ISIN at the time of giving dematerialisation request as well as at the time of transfer of shares.

Do dematerialised shares have distinctive numbers?
Unlike physical shares, dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable.