Why does pure oxygen stops breathing when patient is in respiratory distress?

Depends on situation. Part of the bodies mechanism for deciding when to breathe is controlled by co2 sensors in the main blood vessels. In some medical conditions (like copd), when excess oxygen is given to patients & drops the co2 level, their sensors stop the automatic breathing cycle until it builds back up.
It doesn't. Oxygen is used to treat hypoxic respiratory failure. But like every other drug it can be toxic. Oxygen does not stop you breathing. It can damage the lungs when used at high levels for along period of time. It is a "two edged sword", necessary for life, but when used as a treatment it has side effects.