Dry your metal tools with the cloth. Work a little automobile paste wax into the metal, using the cloth to spread it uniformly over the tool. The wax covering will prevent air and moisture from reaching the metal.
Spray your smaller metal tools with a lubricating spray or aerosol rust preventer. Like the wax, the spray creates a barrier between the elements and metal.
Keep your smaller tools in a wooden box. This simple storage technique can dramatically cut down on their exposure to the elements. Cover larger tools with a canvas tarp. Leave a gap between the bottom of the tarp and the floor, or the tarp will trap moisture and cause rusting.
Install a dehumidifier to take moisture out of the air in the tool storage area to reduce the likelihood of your tools rusting. This solution is more suitable for dank basements than drafty sheds.