It's the most potent hallucinogen known when used right. It causes your mental factors to get exploded into random directions due to receptors in your brain usually reserved for serotonin being overloaded. It takes you to chönyi bardo, which is normally only visited right before you die, where the five aggregates are dissolved and you're turned into an ego-less observer paying direct witness to the processes of the mind. Your brain does return into normal functioning afterwards, though, so it will be capable of recounting some of it.
>your body produces it
DMT is a trace byproduct of normal amino acid production chains, possibly involving tryptophan. It occurs endogenously in the whole body, not just the brain, but hasn't been proven to have any actual use in it. You need a LOT of it (about a 100,000 times more than there normally is in the brain) for it to have its known effects.
>there really is a 3rd eye in your head
You're probably talking of the pineal gland, which does have photosensitive cells. This is likely an evolutionary remnant of the system that forms the parietal eye in some reptiles, which is a literal third eye. All the pineal gland really does in humans is regulate sleep. We carry 3.5-3.8 billion years of genetic heritage in our bodies, and obviously not all of it is in regular use.