The RSS button and the RSS Feed block are not directly connected.
RSS, boiled way down, is a syndication of headlines and snippets available as an xml
file which is posted on the web.
The RSS button allows you, the reader, to view or subscribe to this xml file with your browser or news reader. This button links to the feed from moodle's forums and actvities.
The RSS Feed block is a reader. You must first define the URL
locations of xml files which this reader will parse and display. To get started visit your moodle site's admin page. Click the blocks section. Find "Remote RSS Feeds" and click on settings to administer the site's RSS Feeds block settings. Here you will define the default number of entries to be displayed on each now block on your site, how long before cached feeds timeout, and most importantly define who may add new xml urls. Your choices are everyone, administrators, or administrators and teachers only. The default is administrators only.
After you have defined these preferences you will want to define some feeds. Click save - you will be back at the blocks page so click the remote rss feeds settings link again - then click Add/Edit Feeds. On this new page you will add the url to the xml files you have found on the web. For instance - click the RSS button at moodle.org you saw and copy the url you are transported to into the "Add a news feed URL: " text area. Click the "Validate" link before adding a URL to verify you have a valid feed specified. Click the add button when ready.
Finally you want to add an RSS Feed block and display the news feed in it. Visit a course (or in the not-yet-begun 1.6 visit My Moodle or your personal Blog
page) and turn editing on. Once editing is enabled use the block admin block to add a "Remote RSS Feed" block. Click the edit icon in the block title to go to block instance editing. This new page, "Configuring a Remote RSS Feeds block", contains block instance settings - changes here do not affect all RSS Feed blocks on your site but rather just this unique block on this page. In the "Choose the feeds which you would like to make available in this block" drop down menu select the feed that you added. Save your changes and view the results!
You can now define more feeds and add more blocks. You could also select more than one feed per block to save space.
I hope that helps.