This is an article I wrote a while ago before there was a baby forum on greenhome. It fits in here so thought I'd share. It's a wiki on this site too.
So I noticed that the only people that gave us baby powder for the baby shower was the older generation, and we never used it. I mean, what is the honest purpose of it, what does it do?
A couple months after we switched from mainly disposable to mainly cloth diapering, I was talking with an older family member about how my son was always trying to scratch his butt and genital area since we switched, I thought maybe it was rough on his skin or something.
she asked, "well, are you putting baby powder in the diapers?"
WHAT!?!?! that's what it's for?
no one every told me that lol I honestly thought it was for putting on babies after their baths, she said that too, but mostly it helps with the moisture in the diaper when they pee, so that it doesn't rub as bad and is smoother on their bottom in general.
Now I can tell you from experience that she is right. However the baby powder lesson just began for me that day. I never guessed what an amazingly variably used, and controversal product I had ignored all that time.
Use after bathing to help absorb excess moisture, especially from skin folds.
For use in cloth diapering care to absorb excess moisture away from baby's skin.
- Sprinkle talc baby powder in areas where you see insect infestations. 
- Help rubber gloves slip by sprinkling baby powder inside. 
- Sprinkle baby powder between sheets to help absorb perspiration. 
- Use baby powder on the necklaces or other metal clasps to use as a dry lube. 
- Use at the beach to absorb moisture and wipe sand off 
- Sprinkle between pages of books to get rid of that musty smell 
- Sprinkle/sweep between boards and cracks to get rid of wood floor sqeaks. 
- Use while shaving with electric razor to reduce friction 
- Use to absorb oil/grease from cooking and other stains in clothes 
- Use on your own hair or a pets fur to absorb excess oil. Just rub in and brush out 
- Place in a bowl and use like baking soda in closets or bathrooms as a deoderizer/freshener 
Talc powder is often made from different combos of zinc stearate, and silicates which are finely ground. The size of particles is so small that they are both easily carried in the air like dust and can reach even the smallest areas of the lung.  Talc is what most baby powders use to be based from and it is believed that talc can cause polyps in the lungs that can lead to cancer.  However there has been no specific link established between talc and lung cancer. Some of this conjucture could have to do with the link between lung cancer and asbestos when it was realized that inhalable fibers and dust including talc accompanied inhaled asbestos. 
It stands to reason the main concern with talc-based powders being used around babies and people in general was caused from the type of usage. Being unaware of the effects on lungs and transferring the powder directly from the container to the area with air between causing huge clouds of it to balloon into the air and hang there. Several usages a day meant that the amount being inhaled was quite alarming.
Female Use of Talc & Ovarian Cancer
Some studies have shown a link between frequent use of talc in the female genital area and ovarian cancer. Talc particles are able to move through the reproductive system and become imbedded in the lining of the ovary. Researchers have found talc particles in ovarian tumors and have found that some women with ovarian cancer have used talcum powder in their genital area more regularly than women without ovarian cancer. 
To remedy the concerns with talc-based powders most baby powders are now corn starch (or sometimes other starches) based. You need to check labels to be sure which kind you are buying. This is a better option because even if inhaled, the celia are more likely to flush it out properly and any liquidated compound can be safely passed to the blood stream. It can still contribute to lung irritation like any powder.
The main downside to having a starch-based powder is that if the baby gets a yeast infection it can make it worse. Since yeast feeds on starches.
Alternative Care Options During Yeast Infections
- If you use disposables then you can switch to crème based diaper care for the duration of the yeast infection.
- If you cloth you can switch to disposables for the duration and use cream based diaper care.
- You can stick to cloth and use cream based diaper care by using talc based powder as a barrier to protect you cloth diapers from damage from the cream which can effect absorbency.
- You can switch to using talc based powder for the duration of the infection. You can more safely do this by transferring the powder directly to your hand and then directly to the diaper to minimize breathing it in.
Danger of Inhaling Powder
Regardless of whether you use talc or starch based safety is a key factor. Inhaling too much powder of any kind can be fatal. When changing your baby keep powder well out of arm (or foot) reach of your little one.
There have been reports of life-threatening episodes in infants from inhalation of powder, as well as deaths reported from aspiration of powder. Many cases happened during a diaper change from the infant spilling the powder. 
Make Your Own
Just plain old corn starch is the easiest ‘recipe’ for baby powder. You can also use just arrowroot powder. Or you can mix them
For a more fragrant option mix one desired essential oils one drop at a time into cornstarch/arrowroot as you stir or shake it up (to avoid clumping).
There are some more complicated recipes, but I have found these work just fine, and most of the store bought ones (from the ingredient lists I’ve seen) are basically just powder and fragrance anyways.
 Harlow BL, Cramer DW, Bell DA, Welch WR. "Perineal exposure to talc and ovarian cancer risk." Obstetrics & Gynecology, 80: 19-26, 1992.