It's very useful substance, a light, powdery rock formed in the Jurassic period from fossilised algae. The insecticidal properties it has have nothing to do with chemicals - it is simply very absorbant so it dries out little insects and dehydrates them.
Sprinkle a little in nest boxes or in dust bathing areas and say goodbye to mites and lice. It can also be used a slurry to paint on perches if you notice a mite invasion.
Best to buy a food grade version because obviously the chooks may eat it. The product is used widely in things like cat litter as an absorbent, and for mopping up industrial spills (including major oil spills).
It's a very fine powder, so sprinkle it where you need it: In your chicken nests, on the perches and around the feed bins. You can also use it for cockroach and other insect control in the home – but because it is so fine, wear a mask when using it.
Please only use food grade diatomaceous earth for your flock and your household, as other grades can contain chemicals and high amounts of crystalline silica which can damage your lungs.