What EXACTLY happens inside the chrysalis?
The chrysalis is formed from the last larval stage (caterpillar). Usually, the caterpillar’s exoskeleton alters to form the outer skin of the chrysalis. Inside, the insect separates from the chrysalis and grows a new exoskeleton that includes adult features. Internal development starts from various clusters of cells (imaginal discs or buds) that have been dormant within the caterpillar. These imaginal discs may be considered islands of embryonic tissue that remain undifferentiated until pupation, when they give rise to adult features. Unneeded internal structures breakdown through histolysis and are absorbed by phagocytosis. There is a great deal of variation in development between species as well as between organ systems. For a more complete discussion you’ll need consult a good text on insect morphology or get into the literature.