Astor, air tool oil is a light weight, gum solvent oil. You can buy it at Wal-Mart, as well as most auto parts stores. A half teaspoonful at a time is plenty, but you can't hurt the tool by using too much; the surplus will just be blown out the exhaust. And the best way to protect the tool is to give it a shot of oil, then one quick burst of air when you finish using it and before you put it away. That'll replace any moisture and prevent corrosion. You didn't say what brand and model number you got, so I'm assuming the dial on the bottom is for reducing the tightening power when you don't want to overtighten something. On all the ones I'm familiar with, turning the dial down does not reduce the loosening power; i.e., reverse, but simply reduces the tightening power by partially closing the air intake, thereby reducing the volume of air going through the tool. Most mechanics never turn the adjustment down; they just give the tool a shorter burst of air when they don't want something too tight.
Now we're talking about air tool oil, which is applied through the air intake. I'll assume that your tool also has either an "oil" plug on the side (should be half full of 20W or 30W non-detergent motor oil) or it has a grease fitting (tiny ball bearing in a "dimple" either on the rear or on the side) that you grease with a needle nosed grease gun.
