We actually don't know how it works. A new plausible theory came out but it is just speculation so far and doesn't account for everything.

https://www.livescience.com/health/we-may-finally-know-how-tylenol-works-and-its-not-how-we-thought

"Even though we have been using paracetamol for the management of pain for more than 130 years, we still don't fully understand how the drug works," Wheate told Live Science. One widely held theory was that acetaminophen stopped the body from making. prostaglandins, which can trigger pain and inflammation, he said."If the results of this study are confirmed, then it significantly changes our understanding of the drug."

Keep in mind this study was done in rats and this article is from 6/19 of this year.