Erythema toxicum neonatorum (ETN) is a benign self-limited eruption occurring primarily in healthy newborns in the early neonatal period. Erythema toxicum neonatorum is characterized by macular erythema, papules, vesicles, and pustules, and it resolves without permanent sequelae.  See the image below.
Also see the Pediatrics article, Erythema Toxicum.
Increased levels of immunological and inflammatory mediators (eg, interleukins 1 and 8, eotaxin, the adhesion molecule E-selectin, the water-channel proteins aquaphorin 1 and aquaphorin 3, the chemotactic factor psoriasin, high-mobility group box chromosomal protein 1, nitric oxide and its isoforms, the antimicrobial peptide LL-37) suggest that erythema toxicum neonatorum may be an immune system reaction. [2, 3, 4] The location of erythema toxicum neonatorum to primarily hair-bearing areas suggests that the hair follicle may be involved. Additionally, the number of mast cells is increased around hair follicles in involved skin. 
The eosinophilic infiltrate of erythema toxicum neonatorum suggests an allergic- or hypersensitivity-related etiology, but no allergens have been identified. Newborn skin appears to respond to any injury with an eosinophilic infiltrate. Because erythema toxicum neonatorum is rarely seen in premature infants, it is believed that immunologically mature newborn skin is required to produce this reaction pattern. 
Contactants and mechanical irritation have been considered and rejected as etiologies.
International studies have found a similar range in the incidence of erythema toxicum neonatorum, occurring in approximately one third to one half of full-term infants.
No racial or ethnic predisposition is known.
The prevalence is higher in males (55%) than in females (30%),  except among females born of first pregnancies, who have a higher rate than males of first pregnancies.
See the list below:
Incidence rises with increasing gestational age and birth weight. 
Prognosis of erythema toxicum neonatorum is excellent. Erythema toxicum neonatorum is a transient eruption with spontaneous resolution and no associated long-term morbidity. Erythema toxicum neonatorum may recur in approximately 11% of patients up to age 6 weeks. Recurrences tend to be mild and resolve without sequelae. Although one study found that infants with erythema toxicum neonatorum had an increased risk of atopy,  subsequent studies have failed to support this finding.
Reassure parents that erythema toxicum neonatorum is not inherited or infectious, has no complications, and has an excellent prognosis with spontaneous resolution.