Despite of the appearance of numerous new materials, the iron based alloys and steels continue to play an essential role in modern technology. The properties of a steel are determined by its structural state (ferrite, cementite, pearlite, bainite, martensite, and their combination) that is formed under thermal treatment as a result of the shear lattice reconstruction γ (fcc) → α (bcc) and carbon diffusion redistribution. We present a review on a recent progress in the development of a quantitative theory of the phase transformations and microstructure formation in steel that is based on an ab initio parameterization of the Ginzburg-Landau free energy functional. The results of computer modeling describe the regular change of transformation scenario under cooling from ferritic (nucleation and diffusion-controlled growth of the α phase) to martensitic (the shear lattice instability γ → α). It has been shown that the increase in short-range magnetic order with decreasing the temperature plays a key role in the change of transformation scenarios. Phase-field modeling in the framework of a discussed approach demonstrates the typical transformation patterns.