The pixie dust powder itself doesn't regrow the missing tissue; it tricks the patient's body into doing that itself.
All bodies have stem cells. As we are developing in our mothers' wombs, those stem cells grow our fingers, toes, organs -- essentially, our whole body. The stem cells stop doing that around birth, but they don't go away. The researchers believe that the "pixie dust" can put those stem cells back to work growing new body parts.
It forms a scaffolding which attracts stem cells to the site of an injury. The stem cells then transform into whatever kind of cells they are next to - if they are adjacent to skin, the stem cells will become skin cells.
If sucessful this might eventually end in the ability to grown new replacement organs to cure diabetes, kidney failure or heart disease. And of course it would be nothing short of a miracle for our wounded veterans.
It is said that war always results in medical advances. That may be true, but the advances are bought at too high a cost.