a quote from how stuffs works site
This Question of the Day talks about how sodium chlorate acts as a
way to store oxygen. You release the oxygen in sodium chlorate by
heating it. It turns out that nitrous oxide (N20) works exactly the
same way. When you heat nitrous oxide to about 570 degrees F (~300
C), it splits into oxygen and nitrogen. So the injection of nitrous
oxide into an engine means that more oxygen is available during
combustion. Because you have more oxygen, you can also inject more
fuel, allowing the same engine to produce more power. Nitrous oxide
is one of the simplest ways to provide a significant horsepower
boost to any gasoline engine.
Nitrous oxide has another effect that improves performance even
more. When it vaporizes, nitrous oxide provides a significant
cooling effect on the intake air. When you reduce the intake air
temperature, you increase the air's density, and this provides even
more oxygen inside the cylinder.
The only problem with nitrous oxide is that it is fairly bulky, and
the engine needs a lot of it. Like any gas, it takes up a fair
amount of space even when compressed into a liquid. A 5-liter
engine running at 4,000 rotations per minute (rpm) consumes about
10,000 liters of air every minute (compared to about 0.2 liters of
gasoline), so it would take a tremendous amount of nitrous oxide to
run a car continuously. Therefore, a car normally carries only a
few minutes of nitrous oxide, and the driver uses it very
selectively by pushing a button.