According to MedlinePlus, the oily or cheese-like substance found within a sebaceous cyst is the protein keratin. The sebaceous gland is located under the skin and swollen hair follicles or skin trauma can cause a cyst to form.
Most sebaceous cysts appear as non-painful lumps under the skin, typically on the trunk, neck or face, states MedlinePlus. They can usually be diagnosed by a doctor through examination of the lump. A doctor may also recommend additional tests to rule out other possible conditions.
About.com states that sebaceous cysts do not need to be treated, are not dangerous, and will go away on their own. However, it is possible for a cyst to become infected or become an abscess.