Methanol itself is relatively non-toxic, but is metabolized by hepatic alcohol dehydrogenase to formaldehyde, and then by aldehyde dehydrogenase to formic acid — the toxic metabolite responsible for severe metabolic acidosis and ocular toxicity (optic nerve damage, blindness).
Rationale for ethanol
Ethanol has a much higher affinity for alcohol dehydrogenase than methanol does
When ethanol is administered, it competitively saturates the enzyme, preventing/slowing the metabolism of methanol to its toxic metabolites
Unmetabolized methanol is then gradually excreted by the kidneys or removed by haemodialysis, while accumulation of toxic formic acid is minimized
Correction of metabolic acidosis (sodium bicarbonate) and haemodialysis (in severe poisoning) are given concurrently
(Fomepizole, a direct and more potent alcohol dehydrogenase inhibitor, is the preferred modern antidote where available, avoiding the CNS depressant effects of ethanol therapy)