Bt cotton is a genetically modified crop formed by inserting the Bacillus Thuringiensis genome into cotton. This allows Bt cotton to produce Bt toxins that specifically kill insects when ingested. The toxins are dissolved and activated in the insect's digestive system, forming ion channels that disrupt electrolyte balance and kill the insect. Bt cotton provides advantages of higher yields and resistance to pests due to the toxins, though it also has disadvantages of high seed costs and potential issues like unemployment and malpractices.