An explanation, please.

I was reading this MSN article about the sentence received by the first GI tried in the Iraqi prison abuse scandal. According to the article, the GI in question received a year in jail, a reduction in rank, and a discharge.

My question for people better versed than I in things military is this: how can he have a reduction in rank and a discharge? Isn’t that like demoting an office manager to janitor and then turning around and firing him? Or is something of rank “kept” by a military person in some capacity, even after they leave the service? Can anyone explain this to me?