IPTABLES doesn't work

[smoothmilk]

Why doesn't redhat-config-securitylevel's iptables rules work?

If I turn off EVERYTHING (www, ftp, ssh, etc) and save, and even
manually restart iptables (# /sbin/service iptables restart) other
computers on my network can access www (even on weird, non-standard
ports with http servers on them) ftp, ssh, etc. 

So whats the point of even including that tool if it doesn't do
anything? I dont understand how it just flat out doesn't work. I have no
idea how iptables works, and because there's no documentation out there
for beginners who just want a script that's for eth0 with a simple www,
ssh and ftp server(s), Im stuck using rh's tools, which don't do
anything. there's no security here. 

Can anyone help?