A ferro rod is a metal compound. When small metal shavings are removed from it’s surface by a sharp object, the heat from the friction ignites the shavings, creating the sparks. The ferro rod is most commonly scraped with a metal blade (back of the knife), but any sharp surface that is harder than the ferro material will do the trick.
When the sparks fall on a piece of tinder that is fine enough, the heat is transferred, and ignition occurs. It is easier to light the tinder if there is a larger amount of it. That way sparks have more area of contact through which to tumble and hopefully find the right spot. If using a natural tinder like grass, a good tinder bundle will go a long way with this method.
Sometimes ferro rods are incorrectly called flint. While the fire lighting process resembles the flint and steel method, they are not the same thing. With flint and steel, the flint is used to remove pieces of metal from a carbon steel striker. Those pieces of metal oxidize, creating the sparks. The flint and steel method requires much finer tinder to be effective.
There are different methods to use a ferro rod. Some people hold it stationary a short distance from the tinder, and then scrape with the blade towards the tinder. Others hold the blade stationary, and scrape the rod by pulling it towards their body.
I don’t like either method. Both of them have a way of disturbing the tinder because neither the ferro rod not the blade are anchored. More importantly, the longer the distance that the sparks have to travel, the more heat they lose. If they are produced away from the tinder their effectiveness will decrease.
The way I like to use it is to place the tinder on a solid surface. Then prop the ferro rod on that same surface. If I have a large tinder bundle, I will place the rod right in it.
Then take the blade, place it on the ferro rod, and slowly, while applying pressure, push it down the rod with your thumb.
The sparks should end up right in the tinder, igniting it. 
