According to an old post here, there are actually THREE coolant temp sensors. I believe the one that JimF circled above in the photo is for controlling aux. fans. Please see the following thread:
1986 300E coolant temp. sensor!
1991 300-SEL - Model 126
M103 - SOHC
James Madison - Oppressors can tyrannize only when they achieve a standing army, an enslaved press, and a disarmed populace.
Liberty Firearms Training - After years of trying to regulate California criminals with a never ending stream of gun control laws they have still not given up with the belief that if they make something a crime that criminals will miraculously start obeying the law.