I'm confused; how does that work?

high performance, fuel efficiency, low NO2 emissions

pick two. (this is controlled by software which means they can sell the same engine that differs in performance and fuel consumption)

With current technology diesel engines have to run less efficiently to ensure more deisrable gases being produced.

I took it as sarcasm...

It's not. It has something to do with the catalytic converter needing some amount of unburnt fuel to work properly. But the Volkswagen engines are so efficient that they burn the fuel too efficiently. So the catalytic converter is unable to perform it's function.