Oxygen sensore in IC(Interal combustion) engines help to maintain the current air fuel ratio which place a imporntant role is efficiency of the engine.

Originally called a "Lambda sensor"
when it was first used in fuel-
injection European applications, the
oxygen sensor monitors the level of
oxygen (O2) in the exhaust so an
onboard computer can regulate the
air/fuel mixture to reduce
emissions. The sensor is mounted in
the exhaust manifold and generates
a voltage signal proportional to the
amount of oxygen in the exhaust.
The sensing element on 99% of all
oxygen sensors in use is a zirconium
ceramic bulb coated on both sides
with a thin layer of platinum. The
outside of the bulb is exposed to the
hot exhaust gases, while the inside
of the bulb is vented internally
through the sensor body or wiring to
the outside atmosphere.
When the air/fuel mixture is rich
and there is little O2 in the exhaust,
the difference in oxygen levels
across the sensing element
generates a voltage through the
sensor's platinum electrodes:
typically 0.8 to 0.9 volts. When the
air/fuel mixture is lean and there is
more oxygen in the exhaust, the
sensor's voltage drops to 0.1 to 0.3
volts. When the air/fuel mixture is
perfectly balanced and combustion
is cleanest, the sensor's output
voltage is around 0.45 volts.
The oxygen sensor's voltage signal is
monitored by the onboard engine
management computer to regulate
the fuel mixture. When the computer
sees a rich signal (high voltage)
from the O2 sensor, it commands the
fuel mixture to go lean. When the
computer receives a lean signal (low
voltage) from the O2 sensor, it
commands the fuel mixture to go
rich. Cycling back and forth from
rich to lean averages out the overall
air/fuel mixture to minimize
emissions and to help the catalytic
converter operate at peak
efficiency (which is necessary to
reduce hydrocarbon (HC), carbon
monoxide (CO) and oxides of
nitrogen (NOx) levels even further).