It's the smoke, not the citronella, that's the real problem

Yes, but the risk is basically the same as inhaling any other smoke from burning stuff.

Citronella itself isn’t particularly toxic when vaporized in small amounts – it’s been used for decades in candles and torches without major health scares. The bigger concern is what happens when you burn anything: you get fine particulate matter, carbon monoxide, and volatile organic compounds that can irritate your lungs, eyes, and throat. That’s true for citronella candles, wood smoke, incense, even bacon grease.

If you’re a healthy person sitting a few feet away from a citronella candle outdoors, you’re fine. The real trouble comes if you’re in an enclosed space (don’t light a torch in your living room) or if you have asthma, COPD, or other respiratory issues. Also, don’t directly inhale the smoke from