Bakhoor is scented wood. Chips of agarwood or sandalwood are soaked in oud oil, natural resins and fragrance, left to cure, and then burnt a little at a time over charcoal. The smoke is what carries the scent through a house.
Oud is the raw resinous heartwood; bakhoor is a blend built on it and made to be burnt; attar is a concentrated alcohol-free perfume oil made to be worn. This guide covers how to light bakhoor safely on charcoal or an electric burner, and how to store it so it keeps its scent.