Solubility is the amount of solid
So it is solubility of the solid (hydroxide in your case), not of the solution
I understand that the solubility will decrease if Fe(NO3)3 can dissociate into ions but the solution is already saturated so how can a solid dissolve to increase the concentration of Fe+3?
Apart from the volume changes it doesn't matter whether you add solid salt like Fe(NO
3)
3 or solution containing this salt. Final equilibrium will be identical.
Note that ypu will get exactly the same effect starting with Fe(NO
3)
3 solution and adding aolid Fe(OH)
3.