About the elf/fae/good people sensitivity to iron

Having read yet another story in which the sensitivity of a creature of the general "fae" type to "cold iron" is a plot device, I realize I have no idea where that bit of fantasy shared canon originated. Does anyone know what the source of it is?

And, while I am asking, in your personal head-canon:

1. Why are the fae sensitive to cold iron?
2. What exactly is the sensitivity? Is it only that weapons of cold iron can injure them, it burns them, negates any supernatural powers, or… ?
3. Does it apply to iron alloys like steel? (Most fiction seems to say no.)