Nitrous causes detonation because of heat.
Detanation is the forced expolsion of the air and fuel mixture before it was intended. The early explosion puts downforce on the piston while the crankshaft and rod are still pushing the piston up. In exteme cases, you can have bent rods, shattered pistons, or even a busted crank.
When you add Nitrous into the picture, you are packing more air and more fuel into the same cylinder (s). More fuel = more power=more heat.
If you ever watch a dyno pull of a motor on "the gas" you will see the EGT's jump anywhere between 100 and 300 degrees when the juice is added! That heat is absorbed (and stored) by the cylinder walls, the heads, the spark plugs, and everything else in there. By retarding the timing, you are giving all the components more time to disperse the heat before the next cycle begins.
Also, when the nitrous comes into play, the motor does not need as much timing to make power. Lets just say that the 10-15 HP you lost by retarding the timing is more than outweighed by the 150hp shot of juice.
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