I thought it had a pure oxygen atmosphere to prevent the bends? Why is it dangerous?

NASA used pure O2 in space until the end of the Apollo program, but the Shuttle and later used the same air we breathe today, 1atm 80% N2/20% O2. Note that in space, the pure O2 was at 0.4atm, so roughly twice the oxygen partial pressure, but only slightly more dangerous than the air we are breathing now. (You need about 0.4atm to keep your lungs from collapsing, so that's the lower limit.)

Why the difference? It's a question of what risks you were most afraid of. Even today, every single spacewalk is done at 0.4atm pure O2- trying to do a spacewalk at 100kPa even the strongest man in the world would have trouble bending his arms- so before a spacewalk the astronauts need to spend several hours pre-breathing pure O2 to get all the nitrogen out of their bloodstream before they can do a spacewalk. The Apollo program thought it was safer if the astronauts could do a spacewalk at literally any point in the mission, so that's what the spacecraft was designed around.

On the other hand, for long duration spaceflight, introducing a different pressure and atmosphere is just another potential source of health problems. Even today, the largest source of information on how human bodies last under 0.4atm pure O2 is the three Skylab missions from 1973-1974. And so the Soviets- who were always more interested in space stations than the moon- and NASA during the Shuttle era went with the atmosphere that seemed like it offered less health risks for people staying on a space station.

Okay, so what about the Apollo 1 fire? To speed up testing, Apollo 1 did two tests at the same time: the Plugs-Out Test, where the astronauts were in the spacecraft with everything running and practicing their countdown, and the Overpressure test where they pressurized the spacecraft to 1.4 atm (to mimic the pressure differential in outer space). And they did it with pure O2. So you had all of these electronics running in an environment at 1.4atm pure O2. And that was incredibly dangerous, in a way that actual spaceflight, a mere 0.4atm O2, was not. But it was just a test, another in a long string of them, and no one involved ever really analyzed it as a potential hazard.

After Apollo 1 a few things were changed: one was that they did the Plugs Out test and the Overpressure test at different times, and a lot of stuff was turned off for the Overpressure test. Another was that the Apollo capsule at takeoff was 1atm 80/20 until a couple of minutes into flight, when it dumped the cabin atmosphere overboard and replaced it with pure O2 at 0.4atm. That's why the astronauts carried little packs in their arms in all the pictures of them getting into the spacecraft, that's the pure O2 tank that they were breathing off of until they could switch to the atmosphere in the cabin after it was replaced.

They breathe a normal mixture of O2 and nitrogen at 1 atmosphere of pressure. A pure oxygen environment is horrifically dangerous if fire ever breaks out.

Apollo I disaster suggests pure oxygen atmospheres are to be avoided.