Nitrous Oxide is N2O it is NOT NO2. Thus when using N2O you are adding a gas which is 33% oxygen, versus normal air which is 21%.
We know that increasing oxygen means you can increase the fueling. We know this because with no boost from the turbo we can blow black smoke, and once boost comes up the smoke clears up (maybe not completely for some, they just need more air).
Nitrous allows more fuel to be burned before the boost comes up. Although I have not played with it, I believe the progressive nitrous systems reduce Nitrous as boost increases. Thus allowing more pressure and heat in the cylinder, which equates power, which in turn would speed up the time for the turbo to be at full boost.
NOW running pure O2 would be good in theory, However could create a very bad consequency, because it would create an extreme oxygen rich enviornment and would be very volatile.
N2O is safe because the O does not seperate from the N until 575 degrees, by that point it is already in the chamber where you want combustion. Thus the reason you dont have to worry about Nitrous exploding in a diesel like with a gas engine. NO SPARK.
SO Nitrous is pretty safe in Diesels, HOWEVER can and probably will break parts if not used correctly.