“The mechanisms that link cellular differentiation programs and dynamic gene regulation in complex eukaryotic systems remain mysterious. Such programs drive diverse and central biological processes including organismal development, immune function, disease progression, and meiosis.”
Source: The Brar Lab at Berkeley
Although there has been extensive progress in the understanding of factors involved with cellular differentiation, a full description of how stem cells differentiate into radically different forms (to generate the diverse structure of complex organisms) is elusive.
Each cell of a mammal (for example) carries the full genetic code to form any cell within the body. As an embryo develops, multiple sets of genes are 'turned off' within a cell, leaving the only the correct set operating to form the target cell.
There are many theoretical proposals to explain how this occurs - including 'epigenetic' (outside the cell factors - e.g. hormones etc.) which evidently influence the growth and final destiny of a cell.