In racing, nitrous is injected into an automobile's air intake to increase power. This isn't magic -- basically it is just providing more oxygen which allows more fuel to burn per stroke. The extra fuel per stroke gives you the extra power -- the nitrous just provides the oxygen needed to burn that fuel. It also provides a cooling effect as it transitions from a liquid (in the bottle under pressure) to a gas -- this helps offset the additional heat of burning more fuel.
There is an oxygen atom per molecule of nitrous (N2O) -- 33% versus 21% in regular air (which is also mostly nitrogen). Nitric Oxide (NO) would be better (with 50% oxygen), but that molecule is much more tightly bound. N2O falls apart at 572 degrees F.
O2 gas would theoretically be better, but you'd need a much thicker (heavier) tank to obtain the higher pressure needed to keep it liquid. Also it'd be much more of a hazard in a crash, line break, etc. Boom.
The potential drawback is because you're burning more fuel per unit time, the pressure on the cylinder will be greater. Also despite the cooling provided by the vaporization of nitrous oxide, the heat in the cylinder will be greater.
In most nitrous aftermarket kits, there isn't much subtlety. The amount of fuel you can burn is ultimately governed by the injectors and fuel pump running flat out. The nitrous kit is tuned to provide the right amount of nitrous to burn that amount of fuel. You flip the switch and open the throttle to full -- and hang on.
The Road Warrior had a great nitrous fired vehicle -- not the last
of the V8 Interceptors, but the Lord Humungus' insane F100. In the movie's
climactic scene, Humungus opens a nitrous booster (blue tanks) in order to
catch up with Mad Max's gas tanker. Speed kills.