You pre-authorize an amount, and are then charged what you pump.
And yes, outside of bigger towns the pumps are automatic, and you will need a credit card with chip and a 4-digit PIN, although there used to be stations where you could use notes as well. So best fill up in a town, where stations aren't automatic. All the petrol companies have a list of those stations, such as N1: https://www.n1.is/en/locations/#category=Thjonustustod;