I have an oil separator on my 1982 240D. It's function is to take the crankcase vent (PCV) and separate the oil from the vent and send the oil to the crankcase and the cleaned vent gas to the air filter. It supposedly keeps oil out of the air filter and reduces oil consumption by reclaiming some of the oil in vent stream. If you have one on you gasoline engine, it should be similar in function. Look for about a 3/4 inch hose off of the valve cover going to the separator and similar hoses from the separator (bottom) to the crankcase and to the air filter.

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1976 240D
1987 560SL
2007 E320 Bluetec
1998 C280 (now son’s car)
1982 240D Manual - Sold