Oxygen sensor (Lambda sensor) is installed in the exhaust and measures how much oxygen there is in the exhaust gases. Based on this the ECU can adjust the fuel/air ratio so that all fuel is brunt and used effectively. I would recommend going to a garage with VAG diagnostic system such as VCDS or VAS as this will show which sensor is causing issues and exactly what is wrong with it.
Assuming you have 1.6 petrol there are 2 oxygen sensors - one before catalytic converter and another one after.