Essential oils are the oils that are derived from plants, rather than oils that are manufactured using synthetic ingredients. Many people feel that in order to effect medicinal benefits it's necessary to only use essential oils and synthetic or "fragrance oils" will not accomplish the tasks. One of the most used essential oils is that derived from the Eucalyptus plant and it's medicinal use is in Vick's Vapor Rub as the inhalant expelled when rubbed on the chest or skin.
Often Chinese teas are used for medicinal purposes yet in the Western world the benefit is believed to be derived from the ingestion of the tea itself, however in the Eastern world the benefit is believed to be derived from the fragrance of the tea and intake into the respiratory system, rather than the digestive system. There are many questions as to how oils, whether essential or fragrance, affect our health. Aromatherapy is the branch of science that tries to determine cause and effect.
One of the problems in deciding what is the causative agent in oils, whether essential or fragrance, is whether the benefit is derived from a constituent of the oil or from the reaction by the olfactory nerves to the fragrance the oils create. Here's an example.
Lavender oil is a very popular oil that has historical usage as a "relaxant, anti-anxiety oil". For centuries it was used to help calm the nerves, go to sleep, as a calming agent. Cleopatra used to have the sails of her ships drenched in lavender essential oil to announce her arrival, as the fragrance wafted in front of her arrival. It is rumored she also used it to "calm the enemy" before the assault.
Today with the chemical production of lavender fragrance the question begged is will the same fragrance produce the same calming effect? If so, is the causative factor the way our body reacts to the fragrance itself rather than to the chemical ingredients of the oil itself. A word of caution though is because fragrance oils are basically petroleum based no one should consume any fragrance oil as it can be harmful.
Also although some people have skin reactions to essential oils it is far more common for fragrance oils to cause skin irritation so fragrance oils should not be put on the skin itself due to the myriad of possible reactions to the vast ingredients in fragrance oils.
In practical applications of lavender fragrance there appears to be a calming effect whether the source is from the plant itself or chemically created. The overall effect of lavender as a calmative seems to be from the fragrance itself. If so then part of the mystery of only allowing the use of essential oils rather than fragrance is debunked for that particular fragrance. If the fragrance itself, whether natural or by chemical means, is causing the olfactory nerves to be stimulated and the resultant calming effect is then due to the body's reaction to the fragrance stimulant, then we have a better understanding of the use of fragrance/aroma for health benefits.
Again this simple explanation does not discount, nor predict which accomplishes the task but only highlights our quest of determining how fragrance can be used beneficially and what is the actual causative factor, an ingredient, or our body's reaction to the fragrance stimulant.
The video below goes into more depth into how essential oils are grown and harvested.