What is Henna and how is it made?

The technical bit:

Henna or Hina (Lawsonia inermis, syn. L. alba) is a flowering plant, the sole species in the genus Lawsonia in the family Lythraceae. It is native to tropical and subtropical regions of Africa, southern Asia, and northern Australasia in semi-arid zones. Henna is a tall shrub or small tree, 2–6 m high.

Henna, Lawsonia inermis, produces a red-orange dye molecule, lawsone. This molecule has an affinity for bonding with protein, and thus has been used to dye skin, hair, fingernails, leather, silk and wool.

And how is henna made into a hair dye or tattoo stain for skin?

Whole, unbroken henna leaves will not stain the skin or hair. Henna will not stain skin or hair until the lawsone molecules are made available (released) from the henna leaf. Fresh henna leaves will stain the skin if they are smashed with a mildly acidic liquid. This will stain skin within moments, but it is difficult to form intricate patterns on the skin or to apply to hair from coarse crushed leaves. Dried ground, sifted henna leaves are easily worked into a paste that can be used to make intricate body art or to dye hair.

Commercially available henna powder is made by drying the henna leaves and milling them to powder, then the powder is sifted. This powder is mixed with lemon juice, strong tea, or other mildly acidic liquids but can be mixed with water alone.
Essential oils with high levels of "terps", monoterpene alcohols such as tea tree, eucalyptus, cajeput, or lavender will improve skin or hair stain characteristics. The henna mix must rest for 6 to 12 hours so the leaf cellulose is dissolved, making the lawsone available to stain the skin or hair. The longer henna is left on the skin or hair the darker the shade achieved.