1. Mechanism: Mechanical Injury vs Chemical Injury
Both treatments work by injuring the skin in a controlled way and letting repair do the rest. The difference is what does the injuring. The FDA describes a microneedling device as an instrument with many small needles, tips or pins on the surface, repeatedly inserted and removed into the skin, and its classification order defines a microneedling device for aesthetic use as a device using one or more needles to mechanically puncture and injure skin tissue.
A chemical peel does the same job with an acid. Published work in the field describes the basic procedure as obtaining a controlled chemical burn of the epidermis or dermis, which produces epidermal regeneration, new collagen after the inflammation, remodeling of collagen and elastic fibers, and deposition of glycosaminoglycans in the dermis. The agent and its strength decide how far down that burn goes.
That distinction matters for what you feel and what you see. Microneedling creates thousands of separate channels and leaves the surface between them intact, so the skin looks flushed and feels tight but does not usually shed in sheets. A peel treats the surface as a single field, so the visible event is the skin lifting off days later.
It also matters for what each is good at. Needles reach into the dermis where scar tissue and structural collagen live. Acid works from the surface down, which is why it is the more direct tool for pigment sitting in and just under the epidermis.