Weapons and armor made of iron can become rusty. This happens if a unit with iron equipment goes underwater. Acid damage can also inflict Rust. It has the same chance as fire.
Rusty armor can be damaged if it takes a hit in combat.
Chance for Rusty armor to be damaged = Damage inflicted (before armor protection, but after shield protection) * 2%
Rusty weapons have a 25% chance of being damaged when they inflict a hit on something. Damaged weapons have their damage reduced by 2, except for blunt weapons which have their damage reduced by 1.