The main function is to increase the keeping qualities of the bread. It retards the firming process and increases the shelf life of the loaf.
The oil lubricates the gluten and lines the cell walls throughout the crumb. This causes less restriction on the expansion of the cell walls, thereby creating thinner walls, opening the texture and softening the crumb.
The softening of the crumb makes it easier to slice the bread. The thinner more uniform cell walls and the lubricating effect of the oil causes less drag on the slicer blades. Only
1% is sufficient to improve slicing.
There are many kind of oil out there and if your going to add oil to your bread it will be always Canola Oil, I found it the best one to use and it the heathiest. However, if you would like more taste in your bread olive oil is a good choice too.