Humans are 99.9% genetically identical to each other, and we are 80% genetically similar to cows(1), and yet we are drastically different. If we are genetically the same how is it possible that we can look so different? This is down to gene regulation, much of which is being controlled during the embryonic stages of life, when the basic body plan is being formed(2). A regulatory gene controls the function of a gene or set of genes, determining when the gene makes gene products, for example a protein or enzyme. So, while both humans and cows have genes for growing hair, our regulatory genes turn off the expression of hair genes whereas the cow expresses this gene.
In some cases, there can be complicated networks of genes involved to bring about regulation. For example, a regulatory gene can control the expression of a gene which makes a protein like calcium hydroxylapatite, this proteins function could be to activate another gene and produce bone growth. Since the production of proteins like calcium hydroxylapatite is highly regulated, and can only occur as specific times, for example following a bone fracture. However, most cells determine their function very early on in development, and so skin cells only divide and form more skin cells and not bone or teeth. Only stem cells can become any type of cell, and this is determined through a variety of mechanisms, including the chemicals surrounding the cell.
Recently there was a medical incident where these regulatory mechanisms were demonstrated. A woman received cosmetic surgery involving adult stem cells being removed from her abdomen and being inserted in to her face to reduce wrinkles(3). However, dermal filler was injected in to the face at the same time. While dermal filler has been shown to be very safe, it does contain calcium hydroxylapatite, and so caused the stem cells to differentiate into bone. Luckily, the woman underwent a surgical procedure to remove these small bones that formed and has recovered. This case highlights the fact that stem cell science is a very new technology and needs better government regulation(4)(5), and that regulatory genetics is still an emerging science with a lot to be discovered.
(5) http://www.ncbi.nlm.nih.gov/pubmed/22410974 E Markham (2012). Glorious Genetics Blogspot