As Maurice had commented, the POR-15 stuff is mentioned on quite a few car enthusiast sites. I've never used it myself, but it sounds like some pretty tough stuff. The only complaints I've read about it are that it doesn't have a UV inhibitor in it. Shouldn't be a problem for wheel wells since it won't see direct sun. There are similar products out there with UV inhibitors in them, but they can get pricey. I would be a bit more hesitant on coating over that rust without removing as much of it as I absolutely could. The POR-15 will slow it down for sure, but the Neil Young reference (above) still rings true.
My recommendation is to head to Harbor Freight (or Lowe's or wherever else) and pick up some Evapo-Rust. Then, head to your local eco-food store and pick up some xanthan gum (powder). The Evapo-Rust is pretty watery, so adding a little bit of the xanthan gum to it will increase viscosity and make it more of a gel that will stick to the rusty surface you're wanting to treat. Brush on some of the gelled Evapo-Rust and leave it for a few days. Wipe/wash it off with water, brush it with a steel brush and apply it again. Repeat until you don't see any more rust. Stuff really works well if you're patient. After you're happy with how it looks, wash it down really well (use acetone or another grease remover to make sure your surface is really clean) and hit it with POR-15, or use a self-etching primer and then a few coats of an epoxy paint. Standard spray paints are okay, but they're soft and porous, so you have to apply them regularly if you want to keep the rust at bay. Have also used the cold-galvanizing zinc sprays, but they're really soft and don't have good adhesion --wouldn't recommend that path because of that.
Now, if the piece of metal that's rusted can be remove from the car to treat, I have a different recommendation than the Evapo-Rust. Doesn't sound like that's the case though.
Boy, it's almost like I've had to do this before (sigh).
-Ryan