From a lubrication point of view, oil is used to separate the bearing journals and bearing shells, to prevent metal-to-metal contact. The pressure in the bearing itself is far higher than the reading you would see on the pressure gauge. This is due to hydrodynamic lubrication, where the oil builds its own pressure as it is forced into a narrowing cone when the bearing rotates. That’s why the bearing gap is so crucial – too large and the pressure can’t build dynamically.
The cooling of the engine is ensured by the circulation of the oil, where the hot engine transfers heat to the oil which is then cooled in the sump through the airflow around the engine sump. Some high performance engines will supplement with additional oil cooling through an oil cooler.
The overall oil pressure that the engine produces, as you see on the gauge, is used to make sure the oil gets to where it needs to be. The rotating action of the crank, for example, tries to stop the oil getting into bearings and the oil pump must overcome this. The flow-rate of the oil must be sufficient to make sure it doesn’t stay in any location long enough to overheat or degrade and, hence, no longer provide lubrication.
There are two main ways the oil can be retained; wet sump and dry sump. As the name implies, a wet sump system is typically what you find on road cars, where the oil sits on the sump at the bottom of the engine and is moved around the engine by the pump, falling back down to the sump to go round again.
Conversely, a dry sump system holds the oil in a remote tank, from where it is pumped directly into the engine under pressure. When it reaches the bottom of the engine it is then sucked out, back to the tank. There are several reasons for this system. One is that for a wet sump engine, very high cornering or acceleration/braking forces can mean that the oil flows away from the pick-up pipe and pump can suck in air, which is very bad. Also, for the engines, where the designer is trying to get every ounce of power and torque, every oil droplet the crank hits will rob energy from it. So physically removing the oil will help here.