The cat consists of two honeycomb thingies, consisting of a ceramic structure coated with a metal catalyst, usually platinum, rhodium and/or palladium... the honeycombs are heated up to somewhere around 500-600 degrees celcius, at which point they start to break down the various gases passing through them (eg. 2NO which is very bad for people / environment becomes N2 + O2 which is basically what air made of anyway...)...
The exact chemistry of it all is probably a lot more complex.. but you get the idea
Apparently the fine is around $20,000.. not worth the risk even if it doubles engine power output