It's a common therapy used by proponents of natural healing in India and that part of the world. The idea is that the mustard oil (mixed with sesame seed oil) causes a heat sensation in the skin that dilates the blood vessels, causing the penis to fill and become erect.
The probelm with this theory is the portion of the penis that fills with blood is a type of tissue called smooth muscle, not a blood vessel per se. The chemical the body uses to dilate blood vessles is different from the one that relaxes the smooth muscle and allows it to fill. While it may cause an interesting sensation on the surface of your penis it isn't working on the part that becomes the erection. The sensation combined with the massaging might give someone with psychological impotence the idea that "hey, it's working" and aleviate the anxiety that was causing the impotence in the first place. Combined with the relaxation techniques and other lifestyle changes usually suggested as part of the whole treament a person with psycholocal based impotence can be "cured".
If it feels good to you and it works then go for it.