The oxygen sensor helps maintain your vehicles harmful emissions. It does not restrict the exhaust flow in any way.
Oxygen sensors are typically mounted in front of your catalytic converter/converters and muffler/mufflers so that the oxygen sensor can read the amount of oxygen in the exhaust. From there, a signal is sent to the computer that makes the proper air/fuel mix, or at least makes adjustments to correct the air/fuel mix. There are heated sensors and non-heated sensors -- it's good to know which one you have when you're ready for oxygen sensor replacement. For vehicles built after 1999, you'll find multiple oxygen sensors, one before the converter and one after the converter.

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