What Does the Engine Oil Do?
Oil is a lubricant, whether you are talking about cooking oil in a pan or spray lubricant to stop a door hinge from squeaking. The oil in your car's engine keeps everything moving smoothly, and reduces friction for more power with less fuel consumption. But engine oil also cools and traps dirt, which is why it degrades and needs to be changed.
Even with modern liquid cooling car, the oil also cools the vital moving parts. Engine coolant circulates through passages in the block and head, but can't flow past the pistons, valves, crank and camshaft the way oil does as it lubricates. In a turbocharged car, oil to keep the turbo bearings cool and lubricated as well. Heat breaks down the oil, making it less effective as a lubricant, which is why it needs to be changed, even if all the contaminants are filtered out.
The moving parts of the engine rely on a thin film of oil to act as a cushion as well. Internal combustion is a violent process, with hundreds of little explosions every second to move the pistons. Changing reciprocating motion (up and down) into rotational motion (round and round) puts a lot of demands on the metal parts. Liquid oil keeps the metal parts from touching, so they don't quickly wear out. That is why it is important that oil is the correct viscosity, or thickness, and heat changes that over time.