Iron is Magic?

Evil fairies?  Bad.  Evil fairies with firearms?  Worse.

What’s the deal with Fairies and iron?

Back in the bad-old-good-days or yore, before things like flush toilets, toothbrushes, and a general understanding of bacteria and hygiene, folk could be forgiven for a general lack of knowledge about things that we now know almost unconsciously.

Steel is just an alloy of iron and carbon.

Why is this better?  Well, compared to iron or bronze, steel has a higher tensile strength.  Pure iron, while stronger than bronze, is still reasonably malleable, comparatively easy to bend and deform.  Heat it up, add some carbon, and BLAM-O!, you get a crystal lattice at the atomic level that renders this iron alloy into a versatile component that can be incorporated into anything you heart (and the strength of your arm) can create.

It’s the BLAM-O part that threw our Classical Antiquity and Early Medieval forebears.

Because the process wasn’t known or understood, iron, when being worked by a smith, would sometimes just turn into steel.  There really was no BLAM-O part.  When it happened, it seemed to be beyond the smith's control. A smith thought he was making just another iron axe head or sword, but suddenly he had something stronger (and sometimes more brittle). Once smiths actually knew the process (or at least followed the steps that worked) it might seem like magic had just occurred.  They certainly wouldn't have thought that their iron was anything other than iron.

The only way to stop a bad elf with a gun?

You can see how, especially to outside observers, the process of ironworking would seem complicated (because it was), and possibly—with all the burning and time involved and offerings to the gods and whatnot—even magical. Use against supernatural beings would seem to be right in line with these spectacular gifts, especially if you had a weapon with a decent ratio of iron and steel, making it both strong and flexible, hold an edge, turn other blades, etc. The Ulfberht swords are a really good example of this, so legendary in their abilities during the 9th to 11th centuries that they were often sought after, and there were many forgeries of inferior quality.

So, what do you do when you’re confronted with a Fairy, or something that looks like it’s of the Fairy?  Whip out your magical iron (steel) sword and cut that things wings off, then go home and brag.  What do you do if you're writing urban fantasy and fairies are now running amok, tearing up convenience stores and generally trying to poke holes in your favorite major organs?  Load up your iron-round Glock, pull leather and go to work shooting them!