The IAC (or IAB) is an actuator that bypasses air around the throttle to regulate idle speed under computer control. It is spring loaded to the closed position, so under computer command, it opens the little shuttle valve to allow air to bypass the throttle butterfly. More air increases idle speed, less air slows it down.
The IAC is powered from the same circuit as the injectors and has 12 volts on the Red wire going to it anytime the ignition switch is in the run position. The computer provides a ground path to the IAC to complete the circuit. The computer turns the ground on and off many times a second to control the airflow through the IAC. If you connected an oscilloscope to the White/Lt Blue wire on the IAC, you would see a square wave that varied in width and switched on and off between 12 volts and a little less than 1
Volt.
In closed loop, the computer uses signals from the MAF, PIP, ACT, ECT, BARO and O2 sensors to calculate idle RPM and air/fuel ratio. A malfunction from any one of them could cause idle problems and the surging idle common to many Mustangs.
Here's a book that will get you started with how the Ford electronic engine control or "computer" works.
Ford Fuel Injection & Electronic Engine Control 1988-1993 by James Probst: ISBN 0-8376-0301-3.
It's about $20 from Borders.com see http://www.amazon.com/ . Select boo...very good, and I found it to be very helpful.