I believe that is your rear fog light. To turn on your front fog lights, you pull the light switch out one click. To turn on the rear fog light, you pull the switch out a second click. At that time an orange circle in the center of the light switch should also turn on.
As I understand it, the rear fog light is about as bright as a brake light, and is intended to be more visible to the rear than the tail lights. There is only one of them, on the drivers side, to make sure there is no confusion with the brake lights. This is only what I have heard - the system is in place but not activated on my 87 300E.
2003 Firemist Red/grey leather SL 500
2015 Palladium Silver/black mbtex GLK 350
1987 Smoke Silver/burgundy mbtex 300E Sportline (SOLD)
Click to see 87 300E