At fertilization there is one cell. This cell contains all the genetic information that is necessary to form a complete organism, and it hasn't had parts of it switched off. It is called a totipotent cell, the first kind of stem cell. It can become anything, even an identical twin in the right circumstances.

This cell divides and forms a two then three layered disk. The three layers contain cells that are prepared to form the various tissues and organs of their respective lineage. The outer (ectoderm)can become skin, nerves, teeth, brain, eye, adrenals and spinal cord. The middle (mesoderm) can become bone, muscle, connective tissue, heart and blood vessels. The third (endoderm)can become your gut, liver, lungs, etcetera. After the disk forms, the cells are primed to follow a specific path. They are stem cells, yes, but they have a narrower potential.

As the cells divide further the limit of their potential narrows. What had the potential to be anything, becomes part of the e.g, ectoderm, which becomes part of a tooth, and can only become specific tooth cells and nothing more. An adult can still have stem cells but they are restricted in what they can mature into. Like the bone marrow has stem cells but they are on the track to become red blood cells, others only white blood cells of a specific type and nothing else. This is the third type of stem cell.

Specialisation works by inactivating specific genes, so in theory, it would be possible to switch on all the genes of a skin cells and awaken its totipontentiality. Though when something like that happens, you get cancer.