HOW OIL SYSTEMS MAKE HEAT
Your thermostat (1) has a sensor which measures room temperature. When the temperature 
drops below your thermostat setting (or you rise the level above the room temperature), it sends a signal to the controls (2) on your burner (3) to get into action.
A fuel pump (4) draws oil through a filter (5) to your burner. It turns this oil into a fine spray, mixes it with air, and ignites it in the combustion chamber (6), causing the chamber to get very hot.
What happens next depends on the type of system you have. If you have a warm air system (right), heat is absorbed in your furnace's heat exchanger (7). A blower (8) sends this air through ducts (9) to heat your home.
If you have a hot water (hydronic) system, water circulates around your boiler's combustion chamber. A circulator pumps the hot water through radiators or baseboards. An expansion tank adjusts to varying pressures.
Eventually, the water returns to the unit to begin the cycle again. Steam systems work the same except steam is generated and flows to the radiators (no circulators are needed). A low water cut-off prevents damage to the boiler by shutting it down in case water levels drop too low.
In all systems, the combustion emissions go up the flue (10), never mixing with the water going through your house.