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What exactly is this things purpose?

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Its there so you ask what it is. LOL, J/K.

It does exacly what it says. Its a electrical noise condenser, which eliminates electrical "noises" that could interfer with your tack and radio.
 
Yes, if unplugged the engine will still run normally but you may get the radio noise (depending on how good the radio filters it out both in it's power and through it's antenna) or noise in other sensitive equipment. It's case mounting must be clamped to bare metal since that is the negative. It's positive lead needs to be connected as close as possible to the coil's primary to be effective. A bad capacitor will either be blown out due to an internal short or it lost it's capacitance. Either way it will act as if it's not there. A blown out due to internal short one happens so fast that it usually won't even blow a fuse. It then instantly is not a short anymore (nor has capacitance).

Technically, the capacitor is used to improve the coil's primary pulse. It sharpens (ie. reduces) the edge's rise/fall time, and reduces both pulse overshoot/undershoot and ringing. That is, however, something that will be unnoticable to the human (only an oscilloscope would show it) except as audio harmonics which show up as noise in the radio.
 
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