Get ready from some Organic Chemistry! Certain species of the flower (Chrysanthemum cinerariaefolium and C. coccineum to be exact) contain chemicals called pyrethrins. They are naturally occurring insecticides. They are not toxic to mammals unless used in large doses in which case they can cause neurological and gastrointestinal problems. There are even safer, synthetically made pyrethin like compounds called pyrethroids. They are made in a lab, even less toxic to mammals and they're reportedly more effective than their natural cousins.

The USDA does say that pyrethin containing compounds are "probably the safest of all insecticides for use in food plants" and a pyrethin containing formulation is approved for use around foodstuffs. Pyrethrin is safe for use in food plants, homes and around animals where more hazardous materials cannot be used. It has a long history of satisfactory use around mammals and birds. Although, I would advise care using any chemicals that can be inhaled around birds as they have a very sensitive respiratory system.

In industry, the flowers are dried and powdered or the oils within the flowers are extracted with solvents. When made via industrial methods, the products (dust or oil) usually have a pyrethrin content of 30%. Be aware that pyrethrins are very chemically unstable and they will decompose in light, moist environments and when exposed to air. Industry usually mixes them with a stabilizing chemical to prevent this from happening. So, if you bought a container of "natural flea powder" from your local pet store, you probably don't have to worry!

How does it work, I hear you asking. It's basically a neurotoxic chemical to insects. Upon contact with the insect's exoskeleton, pyrethrins penetrate the bug's nervous system and cause the bug to be immobilized. Some insects will die. Others will metabolize the chemical and they'll recover. It is commonly used to kill fleas, lice and mosquitos. It's often combined with a more powerful insect killer to kill larger, more protected bugs.

Scientific Trails / Toxicity | Humans and Pyrethrins