Timeline and Iterations in RTC
Accepted answer
Timelines is higher level than iterations.
A plan shows workitems planned for an iteration.
You can only set Planned For in a workitem to an iteration for which a release is scheduled. Other iterations are only for organising the iteration hierarchy - essentially they serve as containers for iterations which do have a release.
Note that there is no relationship between the releases defined in the project area and the "A release is planned for this iteration" checkbox. The latter is essentially an "allow to plan work items for this iteration" checkbox.
One other answer
For additional information, see the Help topics in this section of the Knowledge Center: Creating timelines, iterations, and iteration types, and Defining releases in the web client.
Ken