Anemia is common in critically ill patients. While the goal of transfusion of red blood cells (RBCs) is to increase oxygen carrying capacity, there are contradictory results about whether RBC transfusion to treat moderate anemia (e.g. hemoglobin 7–10 g/dL) improves tissue oxygenation or changes outcomes. While increasing levels of anemia eventually lead to a level of critical oxygen delivery (DO2), increased cardiac output and oxygen extraction are homestatic mechanisms the body uses to prevent a state of dysoxia in the setting of diminished DO2 due to anemia. In order for cardiac output to increase in the face of anemia, normovolemia must be maintained. Transfusion of RBCs increases blood viscosity which may actually decrease cardiac output (barring a state of hypovolemia prior to transfusion). Studies have generally shown that transfusion of RBCs fails to increase oxygen uptake (VO2) unless VO2/DO2 dependency exists, e.g., severe anemia or strenuous exercise. Recently near-infrared spectroscopy (NIRS), which approximates the hemoglobin saturation of venous blood, has been used to investigate whether transfusion of RBCs increases NIRS measurements of tissue oxygenation in regional tissue beds (e.g., brain, peripheral skeletal muscle). These studies have generally shown increases in NIRS derived measurements of tissue oxygenation following transfusion. Studies evaluating the effect of transfusion on the microcirculation have shown that transfusion increases the functional capillary density. This article will review fundamental aspects of oxygen delivery and extraction, and the effects of RBC transfusion on tissue oxygenation as well as the effects of RBC transfusion on the microcirculation.