We know that increasing the oxygen saturation in patients at risk of hypercapnic failure (i.e. CO2 retention) increases risk, but the reasons for this are not well understood.
There are at least 6 different known mechanisms at play here but the main factor contributing to this seems to be Worsening of the V/Q matching.
While breathing air some alveoli will be poorly ventilated and because of hypoxic pulmonary vasoconstriction also poorly perfused.
Administering oxygen will increase the PO2 and reverse the vasoconstriction. However, the alveoli will still be poorly ventilated, just ventilated with a higher FiO2. Because of this oxygen supplementation increases dead space ventilation.
This causes CO2 to accumulate in these areas of the lung and since the medulla oblongata cannot increase ventilation sufficiently in conditions like COPD, PCO2 will rise, causing hypercapnia and respiratory acidosis.