Aromatherapy is not simply about the healing scent of the oils but also the chemical interaction between the oils and the body and the physical changes they bring. Essential oils affect the human body in three ways: pharmacological, physiological and psychological. The pharmacological effect is concerned with the chemical changes which take place when an essential oil enters the bloodstream and reacts with the hormones and enzymes. The physiological mode is concerned with the way in which an essential oil affects the nervous system when it's sedated or stimulated etc. The psychological effect takes place when an essence is inhaled, and an individual responds to its odour.

Source: Encyclopedia of Essential Oils by Red Wheel/Weiser