iptables is a new thing for Linux kernel 2.4 that replaces ipchains. If your distribution came with a 2.4 kernel, it probably has iptables already installed. If not, you'll have to download it (and possibly compile it). The homepage is netfilter.samba.org. You make be able to find binary RPMs elsewhere, I haven't looked. For the curious, there is plenty of documentation on the netfilter site.
To set up the rules, you will need to know two things, the interface that the to-be-proxied requests are coming in on (I'll use eth0 as an example) and the port squid is running on (I'll use the default of 3128 as an example).
Now, the magic words for transparent proxying:
You will want to add the above commands to your appropriate bootup script under /etc/rc.d/. Readers upgrading from 2.2 kernels should note that this is the only command needed. 2.2 kernels required two extra commands in order to prevent forwarding loops. The infastructure of netfilter is much nicer, and only this command is needed.