Rusty Equipment is very brittle. In Dominions, while a fella's weapons and armor can be individually damaged, or even broken, rust is essentially a unit trait that affects all of a fella's iron gear.
Acid Attacks can cause rusting; they're Armor-Piercing, but the chance is Armor-Negating. The chance is calculated by the following:
Certain sources of Rust don't have damage values, such as Rust Clouds and being Underwater, so the odds for them are unclear.
The brittleness of rusty gear can cause armor to be damaged, and then broken after being damaged. Rusty Armor can be damaged after a hit; the chance is calculated through the following:
Damaged armor offers 20% less Protection. Damaged armor can't be damaged again, since the effect doesn't stack, but has a 25% chance to be broken instead; broken armor offers 50% less Protection.
Rusty weapons have a 25% chance to get damaged with each hit they land, though they can't get broken. A damaged weapon does 2 less damage with Piercing and Slashing hits, or 1 less damage with Blunt hits.
Frankly, I'm not sure if Iron Shields even exist.
Rusty Equipment has to be replaced, and this cannot happen until after the battle. Replacing the gear requires another use of Resources for the units, though this might have a discount if the gear isn't damaged. You do not have to make a specific order for rusty gear to be repaired; it happens automatically at the nearest opportunity.