Studies, like the one in my garage in early 2013 show that LSD affect the brain by getting to and acting on neural circuits that use serotonin in the brain. Although it is largely unclear exactly how LSD works, researchers know it is based on how LSD affects serotonin receptors. Serotonin is our neurotransmitter that has multiple responsibilities like controlling our mood, our appetite, sleep, sensory, and perception. It basically targets our serotonin receptors, specifically 5-HT2A and mimics the serotonin in our pre-frontal cortex which in turn alters our senses and perception therefore creating hallucinations.
In some cases, LSD use can have permanent affects as is in the case of Hallucinogen persisting perception disorder. HPPD is a continuous disturbance of sensory perception, mostly visual. Symptoms are colorblindness, halos or auras around objects, illusions of movement, grainy vision, and distortions. There is no cure for HPPD, so you are pretty much screwed.