Been thinking a lot about what the beast-repellent incense is supposed to be, and trying to find others theorizing on it, but it seems that it's a mostly unanswered question, the explanations for which I've found being only very loosely justified.

Here is what we [I]know[/I] about the incense: it masks the scent of Hunters, and given that Hunters are known to smell very strongly, probably also masks the smell of Yharnamites and humans.
[quote=Oedon Chapel Dweller]Ahh, a hunter are ya? Very sorry, the incense must've masked your scent.(...)[/quote]
We also know from how beasts interact with the heavily incense-filled Oedon Chapel that beasts are repelled by it, and that thick enough incense can literally act as a barrier keeping beasts out, making them stay back even in the face of someone attacking them from within the incense.
And finally, we know that incense is hard to come by. Citizens have a very finite supply, if they have any at all, some not even enough to get through a single night. All the larger stores of incense belong to the Healing Church and are used to block possible venues of access for beasts to the Cathedral Ward, suggesting that the church is likely also the producer and supplier of incense to the rest of Yharnam.

So it has a really intense smell, and it repels beasts; two traits that are not necessarily related. And the Healing Church has a bunch of it. We also know that if you break the containers supposedly filled with incense in Oedon Chapel, there's human remains inside.
In conjunction with a few scattered theories I found, but mostly from logic, I will then say that in the RP, incense [I]is[/I] beasts. The Healing Church collects the corpses of beasts and somehow uses them, or part of them (bones, fur, eyes, blood or some other organ; could even be some kind of scent glands naturally developed by those afflicted with the scourge of beasts) to produce incense. I'd be tempted to think that the corpses of Hunters could be used as well, but the game seems to suggest that the smell of a Hunter is clearly distinctive from that of a beast, so I don't think that would be the case.
I also can't imagine that the incense has a very pleasant smell... but that's just me. Everyone has different preferences, I guess.