EGR (exhaust gas recirculation) does indeed return a small amount of exhaust gas to the inlet manifold. The idea is that by diluting the intake air with exhaust gas, the air-fuel mixture will burn slower. This reduces the peak temperature of the combustion, which leads to a reduction in NOx emissions, since NOx is formed at very high temperatures only. And NOxes are BAD for the fishes in the sea and such.
It shouldn't significally affect the performance, as the amount of reciculated exhaust gas is quite small. An added benefit (I think) is that the reduced flame front speed delays the onset of knocking.
And Eric, the breather you mention vents fumes (blow-by, oil fumes) from the crankcase, either into the intake system (furry animal-friendly) or through the filter you mention straight into the nice clean air we all share with the other furry animals.