The obvious answer is that the light from a rainbow, or at least the portion that is fitting in your viewfinder at the time you are rotating the polarizer, is all polarized in the same direction.¹ That is, the light reflecting off of millions of water droplets falling in the atmosphere is polarized in the same way by the more or less uniform shape of those droplets as they fall.

That explains how it can be blocked, but how is it enhanced by the lens?

When you rotate a polarizer you are changing the direction of the polarized light that is filtered out. What is left is easier to see since the competing light polarized in a different direction is no longer making it through the filter.

It's not really enhanced, as in 'increased', by the filter. But when competing light polarized in a different direction is eliminated, what is left is easier to see. It's the same way polarized sunglasses work. By filtering out bright glare, one can see details that were already present, but being drowned out by the glare.

¹ As scottbb points out in a comment, if an entire rainbow from horizon to horizon is wide enough, and the lens' field of view is wide enough to see all of it at once, the polarizer won't affect the entire rainbow equally for any single position of the polarizer.