Food grade DE has something in it that is like shredded glass whether eaten or ingested by the target insects; it either shreds their protective barrier and dries them out or if they eat it, shreds their insides. It is not harmful to earthworms due to some kind of structural difference they have from insects, so they can actually eat it and eliminate it.

it doesn't hurt earthworms at all. Diatomaceous earth (DE for short) is the remains of microscopic one-celled plants (phytoplankton) called diatoms that lived in the oceans that once covered the western part of the United States and other parts of the world. Huge deposits were left behind when the water receded. They are now mined and have several important uses in making paint, toothpaste, beer filtering and swimming pool filters. DE is approximately 86 percent silicon, 5 percent sodium, 2 percent iron and many other trace minerals such as titanium, boron, manganese, copper and zirconium.