Essential oils are oils extracted from the organic material of plants--particularly the leaves, petals and trees. The majority of these oils contain chemicals that produce a noticeable fragrance. These oils are used in a number of ways, depending on the type of plant the oil is extracted from. They can be smelled, applied to the skin and sometimes consumed, and can be used to treat or supplement a number of things.
Fragrance
Essential oils are different from fragrance oils, which are made synthetically for the sole function of being used as an air freshener. In addition to other uses, essential oils are frequently placed in diffusers or in jars with reed sticks, which help draw the oil up the reed and diffuse their aroma into the air. Not all essential oils are used for fragrance, but many are, particularly those derived from fruits and soft-smelling plants.
Inhalation/Aroma Therapy
Essential oil can be heated at a low temperature to stimulate its aroma. Many essential oils are used in aromatherapy to treat a number of things, including stress, congestion, coughs and other respiratory problems.
Topical Application
Essential oils, such as lavender, tea tree and peppermint oils, can be applied topically to your skin and hair to treat a number of problems, including acne, eczema, minor burns, irritated skin and lice. Peppermint contains menthol, a chemical that soothes pain and provides a minty sensation. Lavender is best used on burns and other skin problems, while tea tree is frequently used in hair products because it can help relieve dandruff and lice.
Bathing
Essential oils can be added to your bath as a form of enjoying aromatherapy while adding a bit of luxury to your bath. You only need to add about eight drops of essential oil to your both to notice a difference, but you can add oil as you please. Honey and milk are other additives that can be mixed into the bath to help treat your skin in additional to the essential oil. Make sure you add drops slowly and mix the water before getting in. If you are disabled, elderly or can't take a full body bath, you can also bathe just your hands and/or feet to enjoy the essential oils.
Chest Rub
Mix 10 to 20 drops of essential oil into 300ml carrier oil. Rub the mixture onto your chest to breathe in the vapors and ease breaking or congestion problems.
Mouthwash and Gargle
Put a few drops of essential oil into water and use the mixture as a mouthwash. Make sure not to consume the essential oil.
References
Aroma Web: What are Essential Oils?
National Cancer Institute: Aromatherapy and Essential Oils
Oshadi: How to Use Essential Oils