The iron is basically water-soluble. It begins disffused throughout the rock but as water seeps through porous sandstone it will take the iron and concentrate it adjacent to a non-permeable layer (usually sandstone containing some other minerals which are not as readily water soluble). That is how we end up with these concentrated iron bands in the southeast. After the iron has concentrated, the rock around it will erode away faster leaving iron edges and other protrusions. I was at a lecture about Cumberland Plateau geology last week and someone asked the same question. This is how the Geologist explained it (though a little more elegantly).