Polymer clay is a part of the vast family of plastics known as PVC (polyvinyl chlorides), and is a relative newcomer to the art world. Invented in Germany and refined in it's multi-use capabilities in the 1930's, PVC is a product that can take many shapes and forms. It can be hard and rigid, or soft and malleable, and pretty much any degree in between.
PVC is created in a 5 step process, and when using Polymer clay, the artist is performing the last two! These steps are synthesis, polymerization, compounding, forming, and fusing. The first two steps create the PVC in the form of granules of varying sizes (depending on the processing). When creating for polymer clay, the PVC is a fine powder. The third step, compounding, is where colors, stabilizers, and plasticizers are added. It's the plasticizers that give the PVC it's softness and malleability, the "clay" feel, and they aid in the heating and fusing at low temperatures. The last two steps, forming and fusing, are accomplished by the artist when he works the clay and makes the item, and then when he bakes it to turn it into a hard permanent plastic.
For our use, there are two areas of concern. The plasticizers added to the clay are classified as hazardous chemicals by OSHA. If you leave a piece of unbaked clay on a sheet of paper for awhile, you'll notice an oily ring left on the paper. This is the plasticizer leaching out of the clay. Because of this, you should never work clay in the vicinity of food, and any utensils used on the clay should never be returned to the kitchen. You might also ask "what about my hands?". The average user would have no need for concern as long as the hands are thoroughly washed after working the clay. Those artists who work with the clay on a daily basis often make the concession of wearing surgical gloves during the softening, mixing, and kneading processes, and remove them for the detail work. Thus, exposure to the plasticizers is minimized.
The second area of caution is when baking the clay. In the baking process, the individual grains of PVC held in suspension in the plasticizer begin to swell into a gel and they fuse with other grains until the whole piece is turned into hard, fused plastic. After baking, the plasticizers are inert and the clay is considered non-toxic. We've found that using a temperature about 225-240 degrees for an hour thoroughly hardens the clay and does not cause burning. Burning the clay during the baking procedure produces very noxious fumes that are unhealthy to breathe, so remember to have adequate ventilation in your baking area. Ovens can be used, and some artists have toaster ovens dedicated to the clay. And while baking makes the clay basically inert plastic, it should never be used for anything that would contact food, because some residual plasticizers could be released by the acidity of certain foods.
Remember, Polymer clay is a lot of fun to work with, and shouldn't be considered as "dangerous". But have respect for your materials and their properties, and you can only grow as an artist with a thorough understanding of your medium.
(Reference: "The New Clay" by Nan Roche)