What does chocolate do to a dog's health and why?

Chocolate is toxic to dogs and can cause the dog to die. This is because dogs are very sensitive to a toxin in chocolate called theobromine. Incidentally, this is also toxic to humans, but there isn't enough in most chocolates to cause a problem for humans.

Theobromine is related to caffeine and is a stimulant. In dogs it can cause heart arrhythmias and heart palpatations, which can lead to death.