Dirty engine oil is oil that is full of suspended fine particles of metal and other contaminants, and has begun to break down. Every manufacturer will have a recommended oil change interval. If you let your engine oil degrade, you’ll get less life out of your engine before it starts to lose power due to leaking pistons, and so on.
Lubrication and wear
As we mentioned above, oil contains compounds that allows it to pick up and retain fine particles in the oil. It transports these around the engine until they reach the oil filter. The bigger ones (above around 20-40 microns) are filtered out while some smaller ones remain suspended; oil filters filter out a proportion of particles, not all of them, e.g. 99% at 20 microns, so some still get through.
With these suspended particles, rather than providing the usual ultra-low-friction experience for the bits of metal that rub together in your engine, it acts like very fine sandpaper, wearing components such as the pistons, crankshaft, camshafts and bearings down.
Blocking and clogging
Contaminated oil can become sludgy and thick, which restricts the circulation. That can cause engine knocking and other issues. This happens due to incomplete combustion which causes particles like unburned hydrocarbons and soot. Dust and dirt can enter into the oil. High temperatures cause the oil to break down chemically and lose its viscosity (the ease with which it flows while remaining able to form a film).
Water in the oil forms emulsions which contribute to sludge. Taking only short trips where the engine doesn’t get a chance to get up to full operating temperature can result in condensation inside the engine.
Old oil contains compounds and water that make it more acidic. This corrodes or rusts internal components. If there are oil leaks or ineffective coverage of the oil, this can expose metal components to corrosion.
Engine oil takes heat away from engine components, but older engine oil can’t do this as efficiently, and it may be moving more slowly if it is thick and sludgy. Because the oil doesn’t lubricate as well, the engine components get hotter.
Poor quality oil doesn’t form as good a seal around the pistons, causing more emissions of carbon monoxide and nitrogen oxides.
Poor fuel economy
Engine efficiency is reduced, dropping the fuel economy, therefore costing the driver more.
Loss of engine power
Because of the above issues, the engine loses power. It can even seize the engine.