Honey has anti-microbial properties through multiple mechanisms. Fist, it's hygroscopic. Is that the right word? It absorbs moisture from its surroundings, just like salt and sugar. The little micro-critters simply implode as the moisture is sucked out of them. If that weren't enough, certain honeys (a particular type from New Zealand) reacts with wound site to form hydrogen peroxide, which again destroys the microbes.
When honey is diluted sufficiently with liquid, microbes will grow in it, just as they do in any moist environment.
The reason that yeast and Clostridium botulinum bacteria can survive in raw honey is that both organizms hang out as spores. They are encased in a protective shell that acts like a tiny life capsule that keeps them alive in harsh environments. Yeast spores are said to survive in the vacuum of space. That's how sturdy these little critters are.
When the spores come into contact with moisture, the shells dissolve and allow the bacteria to flourish. The botulism toxin ( a protien that causes paralysis) is excreted by the bacteria as it feeds on whatever it feeds on.
The reason it is dangerous to babies and todlers is that their digestive systems can't yet produce the enzymes required to digest (denature) the dangerous protien.
Even if the raw honey is cooked to a high enough temperature to kill the spores, the young digestive tract can't properly digest the honey itself. Again, it lacks the required enzymes.
Now this is all from memory, but is fairly accurate. Consult respected scientific sources for more accurate info.
Seeeeeeya; Chief Lognwind of the North