What year model is this? The 70s 616's had an injection pump that required its own supply of oil, so if this is an early 617, it seems likely that you may need to do an oil change! The knob is exactly as you suspect, it's an altitude compensator. Later models had a pressure capsule (ADA) to do the adjustment automatically.

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Current stable:
1995 E320 157K (Nancy)
1983 500SL 125K (SLoL)

Gone but not forgotten:
1986 300SDL (RIP)
1991 350SD
1991 560SEL
1990 560SEL
1986 500SEL Euro (Rusted to nothing at 47K!)

Gone and wanting to forget:
1985 524TD 167K (TotalDumpster™) [Definitely NOT a Benz]