I've got one of those; for me it's for the radio and it actually is active (disconnect the wire and I have no radio).
Not sure why the PO ever hooked the radio up like that; maybe the original wiring is shot, or maybe this was the easiest way to accommodate an after-market (though period-correct) stereo?

Whatever it is on your picture, it's definitely something added by a previous owner, and if everything in your car is working, that wire is no longer active. I would not just plug it back in: if the other end is cut off and makes contact with the metal body, you could be in for a nasty surprise when you plug that back in and it isn't fused properly. I'd just leave it alone.

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"The MB W123 is so bulletproof, you can drive them forever. Which is a good thing as it takes that long to get anywhere."
Betsie: 1984 W123 300D (hobby, 280k miles)
Myrla: 2001 Mazda Protege 2.0 ES 5spd (daily driver, 130k miles)
The Turd: 2007 Toyota Camry (wife's car, 118k miles)