Firstly, iteration does not always have to do with fractals.
The basic idea is that one pony starts a simple song, and then everypony else remixes the previous pony's remix, thus creating a chain of remixes from the same source that diverge vastly. Then when one looks back to the original version from his own remix, he realizes the power of friendship. Like this:
Iteration 0
Iteration 1 - Remix of Iteration 0
Iteration 2 - Remix of Iteration 1
Iteration 3 - Remix of Iteration 2
...
Iteration 9001 - Remix of Iteration 9000
...
Let's just say if everypony keeps this alive for long enough, we can survive until the next Remix War!!!
Who is willing to start????