Is this an aluminum cylinder with one wire? If so it is a radio noise suppression capacitor. It’s not needed.
Back to topic of grounding chasses or base of voltage regulator, and spark control box. The point of running this ground loop directly back to negative battery terminal is to eliminate any voltage drop created by poor connections. Each time a connection is made some small amount of resistance is added into the circuit. Car bodies are poor conductors, and trusting a fire wall to block to battery path just adds in resistance to a circuit that has to be as free from voltage drop as possible.
The ignition and chagrining circuits are controlling system voltage level, and charge rate for the whole electrical system. If voltages in that circuit are skewed, poor performance of all electrical systems will be the result; over charging, low voltage to coil, poor idle, etc.
