How does the Scarecrow in Batman Begins make people crazy?And what did be do on the inmates he experimented on?

He used a Hallucinogenic gas which causes the people to hallucinate, the hallucinations were made to act on the target's fears, like how batman would see bats, and when it was used on the scarecrow, he saw batman as a demon/the devil. As for the inmates, he used the gas on them so as to test the extent of its effects so as to perfect it before launching his so-called assault on the city.