A dermoid cyst, or benign cystic teratoma, is a cyst lined by epidermal cells, and can contain all the elements of the dermis, including epideris, hair follicles and sweat glands. They often contain hair and calcified bone or teeth. They often calcify and thus can be noted on x-ray.
They tend to occur in the ovary, developing from a primary oocyte (a totipotential cell), and in the brain, where they are thought to occur when embryonic nests of tissue become trapped during the closure of the neural tube.
They are almost always curable by surgical removal, and 99% are benign. Those rare tumors which are malignant usually contain squamous cell carcinoma.