The exhaust gas is inert so it doesn't burn. It just acts as filler. This means less oxygen and fuel in the cylinders to heat up the combustion chamber. This reduces the specific heat capacity of the mix resulting cooler burn temps. It helps to fill out the cylinder and provide something for the oxygen/fuel mixture to push against, allowing you to use as little fuel as possible. Lower temps mean fewer nitrous oxide formations, which thrive in hotter temps and are a pollutant.
What that means is that you can get better MPG and potentially less pollutants. There's your physics.
BTW, I had mine removed.
