Catalytic converters are intended to convert toxic emissions into more benign forms, but they can also be extremely dangerous to you and your engine when not performing properly.
Catalytic converters capture much of the heat from your engine's exhaust and use it to break toxic molecules down and re-combine them into more inert gasses. One important function the catalyst performs is to combine unburned fuel in the exhaust with oxygen to produce carbon dioxide and water.
The reaction that turns unburned fuel into carbon dioxide and water is the same combustion process that drives your engine, meaning it produces massive amounts of heat -- in excess of 1,000 degrees Fahrenheit. Damage to the converter's ceramic matrix or excess fuel in the exhaust can send temperatures soaring to well over 1,500 degrees, which is more than enough to cause the converter case to glow red and set fire to any oily or greasy components around it.
A damaged or collapsed ceramic matrix blocks exhaust flow, which keeps hot exhaust gases inside the engine cylinders. The trapped exhaust gases take up space that should be occupied by fresh air and fuel, which might lead to a noticeable drop in power. Those gases also transfer more heat into the engine's cooling system, increasing engine temperature and the odds of overheating. Hot gases will also increase the engine's tendency to knock or ping, which can destroy pistons, spark plugs and head gaskets.
