The sources I read state they melted wrought iron and cast iron together to get steel. Other sources simply don't mention how steel was made and simply state the wrought iron derived from cast iron was used to make steel. It's interesting cause in China everything was derived from cast iron and they cast aside the bloomery quite early for the blast furnace, and then used a finery hearth to create wrought iron from cast iron.
About how to utilise different kind of steels in DF. You can let different raw entities have access to different kind of steel, they might not necessary need to deviate too much in quality but it makes it nice for immersion purposes as not all civilisation in history managed to get the same kind of steel (think wootz). Another interesting thing is to have different processes leading to steel, once more for immersion. I think if you mess around with the strength of the different steels you can have certain steels specifically for armour that are rather weak weapons and vice versa. Furthermore you can specify what a particular material could be used for. So if you want to add a super metal you can make it either only available as a armour material, a weapon material or even only as a furniture material.
Edit: for the superior kind of steel: you can have a civ you can't play use it, so you can only acquire it through war or trade that balances it out somewhat. The only problem with that is, that with dwarven physics you can make equipment, smelt it and end up with more metal than you made the weapon from.
Edit2: about the smelting of wrought iron and cast iron together, I don't know how they did it, but I've never read any source mentioning the use of crucibles for this.