Why is the product development process said to be iterative in nature?

Even with the fantastic analytical tools we have today, almost never is a product developed that has no problems on the first prototype. Something unanticipated always shows up. Also, the experience of doing something really helps, so usually after designing and making a product prototype, ideas for improvements come. It's usually a few cycles before the improvements become so minor they are not worth the next iteration. It can be extremely difficult to know when to stop development on a product.