It is the alveolic sacs that hold air and where oxygen is transferred from the inhaled air to the blood. The oxygen moves across paper-thin walls to the millions of capillaries and into the blood. There, the protein haemoglobin in the red blood cells carries the oxygen around the body.
This provides oxygen to the cells of all the tissues and organs. It is the haemoglobin in blood that combines with oxygen to form oxyhemoglobin. The blood is now oxygenated and it is this oxygenated blood that is carried around the body to enable it to function.