Difference between ISO and RAR

What is the actual difference between ISO files and RAR files? I know that both are closely related with compressions and decompressions. Similarly, RAR files can be opened by software like WinRAR and ISO files can be opened with the software like Daemon tools. But what are they? Why ISO files should be mounted but RAR can be directly extracted? Does ISO files really need a CD or DVD for extraction of the files in them or they can be extracted any other ways?
