How can air pollution cause lung cancer?

The same way cigs do: Any high level inhalation of hydrocarbon combustion prodicts (tobacco, diesel, wood stove) can lead to cancer, but obviously with cigarettes you are looking at enormous amounts of combutsion product over many years. Urban dwellers get lung cancer at a higher rate than rural folks, but the effect pales compared to the effect of smoking.

Carcinogens: Many if not all cancers can be potentially linked to environmental exposures/toxins/carcinogens. "air pollution" often represents air that contains higher then normal and potentially unsafe levels of certain substances. Inhaling some of these substances is how the lungs get exposed to carcinogens. The greater the exposure over time results in increasing cancer risks and/or cancer rates.