The Oracle gives predictions and insight to Zion operatives who choose to hear her. The One prediction she relays to The Resistance of Zion is that of the Prophecy, where the war will end when The One returns to end the hold of the Matrix.
An oracle is a person or thing considered to provide insight, wise counsel or prophetic predictions, most notably including precognition of the future, inspired by deities. If done through occultic means, it is a form of divination.
Aside from playing a critical part in the creation of the Matrix itself, the purpose of the Oracle is essentially to ensure that the human resistance in each incarnation of the Matrix happens in the first place.
The Prophecy was a prediction made by the Oracle and, as told to Neo by Morpheus, stating the coming of The One and that it will herald the destruction of the Matrix and the freedom of humanity from their oppression by the Machines. Once The One enters the Source, he will have the power to destroy the Matrix.
It's important to understand that even though The Oracle helps, understands and perhaps even empathizes with humanity, she isn't entirely their ally, since she too is a program complicit in the cycle of destruction and rebirth.
Hence, when she apologizes to Neo, saying that he, in fact, is not the One, she is subtly planting the idea in his mind that to assume the mantle of the One, one needs to earn it through sacrifice, which is ultimately what she nudges Neo towards when she says that he needs to either save himself or Morpheus from ...
The Oracle aids the human resistance in freeing humanity from the oppression of the Machines. According to Morpheus, The Oracle has been in the service of The Resistance "since the beginning."
The penultimate scene of The Matrix Revolutions sees Neo jacking into the Matrix one last time, where he and Agent Smith engage in a cataclysmic battle. In The Matrix Revolutions, Smith's abilities are pushed to their limit as he assimilates more and more victims, including Seraph and, inevitably, The Oracle.
How does the Oracle know everything in the Matrix?
The Oracle is a debugger. She is a program that looks at what is going on, step by step, in the computer she herself executes within. She can look very close to the next cycle of execution but as she herself is also part of the simulation, she can never be completely sure.
Like Morpheus, the Oracle is a trusted figure of wisdom and guidance who helps Neo make sense of his mission, but the actual scope of her powers is never quite clear. At times, she seems to be able to control the future, while at other times she seems able only to predict it or offer possibilities.
Near the end of the first film, after he is killed by Agent Smith inside the Matrix, she speaks to his interfaced physical body and reveals that the Oracle told her that she would fall in love with The One, a prophesied individual capable of manipulating the Matrix to an unprecedented degree.
Why did the Oracle change appearance in the Matrix?
The in-universe explanation for the change in the Oracle's appearance between The Matrix Revolutions and The Matrix Reloaded was that her outer shell was destroyed by a villainous program called the Merovingian.
No longer an Agent, Smith is liberated from the Machines' control and exists as a renegade program that manifests himself akin to a self-replicating computer virus compared to his original Agent-based ability to inhabit a single body wired into the Matrix. Smith gains the power to copy his physical form onto any entity ...
As such, the Oracle emphatically told the truth during her iconic scene. When Neo walked into her kitchen, Neo was in fact not the One…at that point in time. It was only by doing that his underlying power began to be evident.
Why did the merovingian want the eyes of the Oracle?
In fact, The Merovingian's behavior strongly suggests that he despised The Oracle to the extent of desiring her termination - proposing that Trinity can bring him the "eyes of The Oracle" as a ransom for Neo's liberation from Mobil Avenue.
The humans were being slowly defeated in the Machine War and as a last desperate attempt to kill the Machines by cutting off their main source of power, The Sun, they released nanobots into the sky and thus scorched it. After the failure of the attempt the humans surrendered to the Machines.
What happened to the original Oracle in the Matrix?
She played the Oracle in The Matrix (1999) and The Matrix Reloaded (2003); however, she died during filming and was thus unable to portray her role in the third film. As a result, Mary Alice replaced her in The Matrix Revolutions and Enter the Matrix.
The Equation by the Architect, to balance itself out and the new Neo, creates Agent Smith, which is why Smith calls The Oracle "Mom". She didn't know exactly how it would all go down but she believed it would ... and it did.
Scaling Neo's power is easier when comparing Keanu Reeves' character to Agent Smith. Before fully awakening his potential, Neo is soundly beaten by the Agent, but overtakes the enemy program after evolving into The One.
In the showdown between Smith and Neo in the pit, we learn that the Oracle can control Smith and make him do what she wants. Smith literally speaks the Oracles words to Neo. This means she purposefully let Smith cause all that damage and kill every inhabitant of the Matrix to orchestrate the showdown in the Pit.
