I need to know why?

Blood carries oxygen. And when there's a problem with the respiratory system, it can show in the blood levels.

With a drop of O2 (from pneumonia, lack of gas exchange) wouldnt the RBC's go up due to erythropoietin? and the body trying to absorb as much Oxygen as possible?

not if there is a problem with the rbc's being produced...not a nurse btw not even in NS yet but thats my guess

One suggestion. Rather than trying to make a direct link between just two of your patient's issues, think much more broadly about everything that contributes to this patient's critical status.

How old is the patient? What about past medical history? Stable vitals? Meds? Any surgery, GI bleeding or other sources for blood loss? Some of the very basic stuff can be a factor here. One study even found that sick adults in ICU had a mean of 65 mL of blood drawn daily for lab testing. Patients may also be volume depleted from the illness and require fluid resuscitation, so hemodilution or hemoconcentration can come into play.

Specifically in regard to the blood counts, how low is low? Do you have a baseline CBC (or maybe a known history of an anemia) before the patient got sick? Is the H/H decreasing now, or was it low on admission? Have they transfused?

Keep in mind that the H/H threshold for transfusion may change as the patient's status changes. In my patients (neonates), a common scenario is to have a baby (usually a growing preemie) with a Hct of 25 on room air or minimal oxygen. We don't transfuse that patient. If the kid gets septic the next week and is unstable with increasing FiO2, we give blood for the same Hct of 25. The patient's new illness didn't cause the anemia, but now we are transfusing (with a goal Hct of 40+) to maximize oxygen delivery to an unstable patient.

Good thinking with the link between hypoxia and increased RBC production, but think more about the timing. Is polycythemia really a response to an acute respiratory issue such as pneumonia? Or is it more associated with chronic hypoxic states? Even forgetting about that timing, is erythropoiesis very efficient in sepsis? Read up on the links between sepsis and altered blood cell synthesis/destruction.

Good luck to you.