引用汉典论坛的讨论，“人是铁，饭是钢”有两个含义：1. 人是铁，但饭比铁厉害，铁是斗不过钢的。不吃饭是不行的。2. 人是铁，经过吃饭，锻炼成钢。以上的观点源自商务印书馆出版、由日本语言学者集体编写的《现代汉日辞海》中谚语“人是铁，饭是钢”一词的解释。
Before the Reformation and Open Doors, in mainland China were many political movements and the Great Leap Forward Movement (http://en.wikipedia.org/wiki/Great_Leap_Forward). The Chinese leaders that time dreamed of 赶英超美 （'leaping' beyond UK and USA), and since the production is the basis of heavy industry, it was very much emphasized. As a result, in that time, we used to describe a man or woman as 'iron'(“铁人”、”铁姑娘“) to show our admiration towards their toughness and as an honor.
As for rice being steel, in vulgar culture, 吃软饭 ((to be used to) eating soft(well-cooked) rice) for a man means to live upon his wife/lover's wealth, which is not good. So, this metaphor here is to emphasize a good sense in it, and it really goes with this expression because of the rhyme and the consistency between 铁 & 钢.
Even though, at that time, saying something like this aloud will be regarded as not understanding true Communism, and might be sentenced sinful privately in the name of "reversing production with conspiracy", which suggests it might have nothing to do with politics.
According to some web discussion posted @ 汉典, someone has looked in the Chinese-Japanese dictionary 现代汉日辞海 where 2 explanations are given. 1. The human is iron, but rice is more useful than 'iron'. Since iron is weaker, it is incredible to have no rice. 2. He who is iron, after having rice becomes steal. The whole process is abbreviated to the word 是, since it is an idiom who must conncentrate it into a single character.