Putting rusty iron in the chicken's drinking water is a very good tonic for your poultry. This is particularly valuable when your chickens are moulting. This practice is an old farming practice that, unfortunately, has been forgotten about, in the main, by most poultry farmers.
Your poultry should always get clean water every day, but if you have a rusty piece of iron in the form of a heavy nut and bolt or something that your chickens won't swallow or isn't sharp enough to hurt themselves this will give them a small amount of iron that their bodies need, and thereby giving them health boost at the same time.
However, too much iron in the water and it will smell and be very bitter to taste. High levels of iron may also encourage the growth of bacteria, which can then lead to diarrhea.
In the end, use your discretion. It all comes down to doing things in moderation and getting the balance right.