There's a few different ways it works:
If you have the PP to burn and it's physical stress we're talking about, you can just spend a PP to get rid of someone's physical stress entirely without an action. If it's physical trauma we're talking about, you can spend a PP to step their trauma back by one (d6 to d4 for example).
If it's emotional or mental stress (or physical stress but you just don't want to spend the PP), you can use an action to try to heal their stress, using the recovery rules. Iron Fist would typically roll his Buddy d10, Young Dragon d8, Enhanced Stamina d8, and Mystic Expert d8 for 1d10 and 3d8 (or he can use his Chi Focus to turn two d8s into a d10 for 2d10 and 1d8, but that's probably not usually a good idea). He would roll against the Doom Pool, and if he succeeds, he compares his effect die to the stress he's trying to heal. If the effect die is equal or higher, then the stress goes away. If the effect die is lower, then the stress gets stepped back by one.