That's right, Russia (with strong support from China) blocked consensus on a sharp U.N. Security Council statement against Iran backed by Britain, France and presumably the United States; such a statement is usually a precursor to sanctions.
The disagreement means that diplomatic discussion will go on concerning measures to try to get Iran to back off its proposed reprocessing of nuclear materials, widely believed to be a precursor to its development of nuclear weapons; not even Iran's friends and clients in Moscow and Beijing believe its public nonsense that it is trying to develop civilian nuclear power.
In any event, the diplomatic work will go on. At some point, if Iran views it as a matter of protecting itself from American aggression, it may elect to proceed with development of nuclear weapons (which American and Israeli estimates put at some years away even under the best of conditions)... which is a problem.
Interestingly, I have not yet seen anybody bring up the United States' special side-deal with India outside of the IAEA framework- the sort of thing that could easily bite us in the ass if and when other countries try to make their own side-deals (e.g., Russia and China with Iran...) This might be out there, of course... I just haven't seen it yet.
Again, as I have opined before in the context of Saddam Hussein and our principal bogus reason for going to war in Iraq, it seems unlikely that a sovereign state would put something with the dangerous potential to blow back upon its own leaders, like nuclear weapons, in the hands of shadowy terrorists. In Shia Iran's case, it doubtless despises Sunni Al Qaeda (though Iran does support Hizbollah and enough other groups to make it number one with a bullet on our State Department's list of terrorist sponsoring states), or even that the ravings of its current President Ahmandidjad about attacking Israel are credible (they are not). The problem is command and control in the event (the eventual certainty, actually, if Iran continues to operate in its current manner) of the failure of Iran as a state. At that point, of course, either elements in Iran may chose to sell nuclear weapons to anyone, or seize them for their own purposes, or God knows what. Same problem, of course, in Pakistan (although Pakistan's bizarre pattern of unpopular democracies interwoven with military coups lends a strange sense of long-term stability) and, of course, in North Korea, though it's unlikely Dear Leader's cadres have a particular interest in being vaporized... they do know at some point that if they fall into a (well-deserved) Ceauciescieu kind of outcome, then just about anything might happen to their weapons...
And so, there we have it. It would be best, of course, if Iran can be convinced not to pursue its nuclear ambitions. Russia and China's leaders probably don't want terrorists with nuclear weapons running around themselves, so there is some common ground. Of course, our domestic politics seem to dictate diplomacy in the manner of cave-men... one fears this might not be the best time for that.