An ISO file is a complete, formatted filesystem image. All dd
does is do a bit-for-bit copy of that filesystem image to your
target media. There is no magic going on behind the scenes. The
ISO filesystem preparation was done beforehand (often by a
specialized tool). All cat does is write that collection of
bytes out. It doesn't interpret the .iso at all, nor does it
understand that it's trying to create a bootable removable
medium at all. It does require proper support from the kernel
and device driver to make the writes work on that media. A bit
of "magic" goes on there, since writable optical media don't
operate exactly the same way as conventional hard drives. But
that magic doesn't involve interpreting the contents of the ISO
file. You could mount the .iso file directly without burning it
by using a loop mount (if such a thing is available on your OS).
Similarly, you can create a file that contains for instance an
ext4 filesystem, and you could cat that to a partition.