Oxygen is necessary for survival of living creatures. Oxygen naturally exists on earth, however if you want to go to the moon, mars or a space station, you will need oxygen equipment.
Oxygen can be collected with Oxygen Collector and put in Oxygen Tank, with an oxygen compressor. Oxygen can also be used for creating airlocks or air bubbles. If you do not have a valid oxygen setup, you will get a red text saying "invalid oxygen setup". You will also start taking suffocation damage.