It shouldn't smell like oil, you're good =)
it's catching oil, yes, but also fuel mist - which is why you get that smell
Description of what they're used for and what they trap
An oil catch can is used to prevent intake system gumming and degradation in a high performance engine from crankcase gases. The catch can contains a wire mesh screen that the crankcase ventilation gases are passed through before they are routed to the air intake. This screen catches oil and fuel mists and just allows the gasses to pass through. The screen is contained within a small catch can that must be drained periodically through a valve. These catch cans are inserted into the crankcase ventilation to intake line with tubing and mounted inside the engine compartment.