Oil, Water, And Gasoline

Oil
Oil used in engines is as a lubricant. In two cycle engines, like the engine the Laika 601 Deluxe, the oil is mixed in directly with the gasoline because there is no spots and not enough room to put oil in separately. Having no oil will destroy your engine and the bearings, causing it to break apart and stop functioning (or in the game, simply cause wear sooner). Having a small amount of oil will lubricate it, but still cause more wear than more oil. The optimal mixture is balanced between performance and run time. The car will accelerate reasonably and not wear as fast. The rich mix, which has the most oil in the gas, decreases the acceleration most notably but also decreases the wear by a substantial amount. This also applies to real world two-stroke engines.

Water
Water is stored in the water tank in front of the battery (which comes in a few variations). When using the windshield wiper and 'spray' function, the car draws from this water tank in order to wet the windows for wiping. The larger the tank, the more water there is to use. You can refill the tank with 1-liter bottles found at gas stations, Outerstores, and at your house (on spawning). The water tank is optional, however, and is a nonessential component.

Gasoline
This is used to make the engine run. In this case, it needs a mix of oil for what is stated above under the "Oil" section. You don't need oil for the engine to run, but you do need gasoline. The gas is mixed with air taken in from the carburetor, sent into the cylinder, and ignited by a spark plug. This is how the engine runs (both in-game and in the real world). No gasoline means that internal combustion (the explosion of gas and air) cannot occur, so the engine will not produce any power.