Though it's commonly called Iceland Moss, this one is actually a lichen. Not one but two things (a fungus + an algae) living in symbiosis under extreme environments (like alpine and arctic regions).
It's an edible folk medicine that's used traditionally in the arctic regions to cure cold, cough, and sore throat. It's a so-called demulcent, an agent that forms a soothing and moisturizing film over the mucous membranes and relieves dryness and irritation causing the cough.
When you slather Cetraria Islandica all over your face, the same moisturizing and film forming effect happens. It's due to the polysaccharides (big sugar molecules) called lichenan and isolichenan that are abundant in Iceland Moss.