As I understand it: you do a show-of-hands vote first and that gets called in. That’s what gets reported as the “Iowa caucus vote”. Then you choose delegates to the county convention. These delegates aren’t required to vote for any candidate at all. So, say, Romney could “win” a precinct’s show of hands, but the guys who are elected as delegates are personally for McCain and Thompson. It doesn’t really matter because the delegates get winnowed down until the state convention when the state’s delegation to the national convention is selected. I don’t know how they make sure that the guy who “wins” Iowa actually gets the delegates or not.
You are mostly correct. There is a paper ballot vote, not a “show of hands.” And you are correct that the eventual convention delegates are not actually bound to support any candidate.