Image via Wikipedia
When Iron ore is mined, it is grains of Iron sand in regular earth; utterly useless to the medieval people unless separated. This process is called smelting.
First, these people would dig a circle in the ground about a foot deep and three foot in diameter. They then would build up clay about 6 in. thick around the edge of the hole. When reaching ground level, a pipe is inserted, and the clay is slowly built up and packed firmly on until it is three to four feet high. Straw is then packed inside and burned to bake the clay hard. Finally, when all this is done, a layer of straw, grass, wood, etc., is put inside, and then a layer of Iron ore, then more burning material, and so on.
With a bellows pumping into the pipe, the wood is set afire and is kept burning for around 24 hours, during which time the impurities in the Iron ore, called slag, melts and separates from the pure Iron. When it cools, the chunks of Iron are ready to be sent to the blacksmith.