How does Aromatheraphy Work?

Aromatherapy

from Wikipedia

Theory

When aromatherapy is used for the treatment or prevention of disease, a precise knowledge of the bioactivity and synergy of the essential oils used, knowledge of the dosage and duration of application, as well as, naturally, a medical diagnosis, are required. In the Anglo-Saxon world, even among "natural" practitioners like herbalists or naturopaths, aromatherapy is regarded more as an art form than a valid healing science.
At best, it is viewed as a complementary and seldom the only treatment prescribed. On the continent, especially in France, where it originated, aromatherapy is incorporated into mainstream medicine. There, the use of the anti-septic properties of oils in the control of infections is emphasized over the more "touchy feely" approaches familiar to English speakers.
In France some essential oils are regulated as prescription drugs, and thus administered by a physician. In many countries they are included in the national pharmacopeia, but up to the present moment aromatherapy as science has never been recognized as a valid branch of medicine in the United States, Russia, Germany, or Japan.

Aromatherapy, phytoncides and other natural VOCs work in different ways. At the scent level they activate the limbic system and emotional centers of the brain. When applied to the skin (commonly in form of "massage oils" i.e. 1-10% solutions of EO in carrier oil) they activate thermal receptors, and kill microbes and fungi.
Internal application of essential oil preparations (mainly in pharmacological drugs; generally not recommended for home use apart from dilution - 1-5% in fats or mineral oils, or hydrosoles) may stimulate the immune system.