The steel wool goes into solution, replaced by the silver (replacement process at the molecular level). The silver is taken out of solution (the sludge) and is a rather pure form with some monetary value.
The fabric of the steel wool is gradually replaced by silver and the steel wool also rusts, therefore the entire mess, sludge plus crumbly wool residue, is a mixture of silver, iron and iron salts. This mass (mess) is what can be recovered, but is by no means 'rather pure'. It does have monetary value.