The oil separator, the white pipe, separates the oil from the air the crackcase gas that comes out of the valve cover. The air is burned (you'll see that a rubber tube goes in to the air filter) and the oil is returned to the oil pan, just like how the original oil/air separator worked.

Alex

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1983 300D (parked for four years)
2012 VW Sportwagen TDI Manual
2001 Miata SE
1962 Chevrolet Corvair Rampside