POR-15 after a good steam cleaning of the frame. I've heard good things and bad things about it but I figure they have more experince with it than I do.
I read that they claim that. I wouldn't put it over a 1/4" of rust myself. I'd clean it up a little - but I think this is the one that claims to use some of the rust in a chemical reaction to make a solid coat.
I used a similar product that is sold by Eastwood on my 48. It's tough stuff. 9 years as a daily driver with the first and last mile on a gravel road and the frame still cleans off like new. No flaking and very little chipping.
You clean off any loose scale and run a wire brush over the surface. Then start painting with the stuff. It doesn't stick to a polished surface so residual rust is important to the curing process.
Yeah, it's made to go over a rusty surface, neutralizing the rust. There are several similar products that do the same thing, POR-15 maybe being the best known. You want to clean all of the dirt and grease off, and as mtflat said get as much loose rust as you can. If you have a new or sandblasted frame, this isn't what you would want to use.
Edit: I think it can also be used for areas like the underside of fenders, beds, etc. Anyplace you want to look nice but not necessarily as nice as a topside finish. I think the one negative thing I've heard about POR-15 is that is can discolor from sunlight exposure, but I figure that won't be a problem for my frame.
More pictures to ogle! It seems they are changing their website around. Also at the bottom are some "before" and "during" pictures to give an idea just how much work was done to the body. And no, the Cadillac is not mine...