EPO, short for erythropoeitin, is a hormone that is normally produced by the kidneys. It then has its effect on the bone marrow, which produces more red blood cells. So the effect of injecting synthetic EPO is to increase the body's natural production of red blood cells. Why would you want to do this? Well, the theory is that the red blood cells, which carry oxygen, are an important determinant of performance ability. That's because the oxygen is required by the muscles and the theory for fatigue during exercise is that if your muscles do not get sufficient oxygen, they rapidly fatigue. Connecting the dots, you get the logic that if you can increase the body's oxygen carrying capacity, you increase the ability to exercise before fatiguing.
And this is probably correct, but it might be a little over simplified. Why, for example, does EPO have it's greatest effects during endurance exercise like a Tour stage, where the cyclist is not really riding very close to their aerobic limit? In otherwords, if EPO was improving performance by increasing oxygen delivery to the muscle, then it would be most effective in the event where oxygen delivery is the potentially limiting factor. And when is oxygen potentially limiting? During shorter, higher intensity exercise, like 1500 m running events, perhaps up to about 15 minutes of exercise. Longer than this, and oxygen supply is not really limiting. So anyone who's ever ridden for 5 hours will tell you that you never really hit that limit, because you don't exercise near your maximum level. So we believe that EPO must have some other effect in addition to the one it has on the blood and oxygen levels.
Is there any evidence of this notion? That the primary benefits of EPO use is not an increase in red blood cells and the blood's O2 carrying ability, but something else? Has such an effect ever been observed? Why then would autologous blood doping be the real game changer in cycling today according to whistleblowers like Kohl and Landis? If this is true, then micro-dosing EPO should be a lot more effective than transfusions even if the actual increase in Hb is less significant, right? How sound is the assumption that an increase in the blood's oxygen carrying ability must have a greater impact on VO2 max than sub max efforts? And what evidence is there that it doesn't?
Edit: Link http://www.sportsscientists.com/2007/06/know-your-drugs-understanding-tour-de.html