What it is
Disodium EDTA, also called Ethylenediaminetetraacetic Acid, is a crystalline powder.

What it does
Disodium EDTA is a chelating agent: it prevents the trace elements, such as minerals, that are present in water from binding with the ingredients present in a product. This is useful because otherwise these trace elements could change the texture, odour or consistency of a product, causing it to look opaque and dirty, smell rancid and even make it go bad. It also prevents these trace elements from depositing on our skin and hair.
In addition, Disodium EDTA can improve the cleaning and foaming abilities of a product and also helps to stabilize formulations.

Side effects
In the small concentrations used in cosmetics, Disodium EDTA is generally considered to be safe. However, because it can enhance the penetration of other ingredients into the skin, formulators should avoid combining it with ingredients that, although safe when applied topically, could be harmful when absorbed by the skin.

(Source: cosmeticsinfo.org, Int J Toxicol. 2002)