Because the air gets to it.
"Burning" is a reaction between a combustible substance and oxygen. Contrary to common belief, many metals including iron) are combustible, meaning that they will react with oxygen and release heat. The reason an iron bar won't generally burn is because the oxygen can't get inside. The surface layer actually does burn, but that forms a layer on the surface that keeps the oxygen from getting to the rest of the iron. If you grind up the iron into powder and disperse it in the air, then the oxygen in the air can get to every part of it, and it can burn pretty easily and very hot.
Burning is just the term we use for rapid oxidation.
Of course iron does oxidize. It does so at a reasonably low rate, and we call it “rusting”. You might observe that iron filings or steel wool rust at a higher rate than an iron bar. This is because per unit of mass, these looser forms have higher surface area, and thus greater opportunity to combine with oxygen from the atmosphere.
In a concentrated oxygen atmosphere, iron can burn.