The smaller filter on the outer edge of the air filter housing (looks like the working end of a small push broom) filters the air going into that hose that comes out of the air filter and goes down to the secondary air pump (or smog pump). I am still not sure how this pump works, but generally it only works during start up and extra air is pumped into the exhaust making it easier for the cat converter to process it. I could be wrong about it function, but that is where that hose goes, and I can see the need to filter that air, especially if the air passing through it goes to the cat converter. I change that filter when I change the big round one. If the hose is loose you should replace it, it is pretty cheap. Mostly it has to do with emmissions control.
1995 E420 - retired
1986 420SEL - retired