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Hi Balto, the reason EGR works to combat detonation is it actually 'cools' the burn inside the combustion chamber because, like you said, less oxygen per volume on a naturally aspirated engine (the cylinders can only fit so much air inside vs forced induction where air is being 'forced' in at higher than surrounding air pressure).
Carrying forward, less oxygen means the computer can add less fuel so as to keep the O2 sensors happy, and eventually the computer reaches a happy place on its internal maps with all the sensor data it's being provided and you reach the best efficiency it knows how.
This is another reason why aftermarket tuners 'can' make engines more efficient with custom tunes, because you can tweak those tables to be leaner, sooner, adjust for higher octane fuel which will let you go leaner without pinging, etc not even getting into modifications that can improve volumetric efficiency... Neat stuff, physics meets video games, lol.
Also why EGR was so unpopular back when first introduced with carburetors, because carbs are dumb and the engines ran like poo most of the time, combined with freakishly low compression and all the other bad things Detroit did in the 70s.
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