Yes that wire does go into the glow plug relay box.
Since it is the wire to the rearmost temperature sensor, it provides the signal for glow plug relay timer.
Less glow time for a hot engine, and more glow time for a cold engine.

The front temperature sensor (which I didn't see in the ring of the oil dipstick)
is the one that has the wire carrying the signal to the temperature gauge in the instrument cluster.
Easy enough to test, unplug it and the temperature gauge stops working.

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78 W116 300SD 'Desert Rose' new as of 01/26/2014
79 W116 300SD 'Stormcloud' RIP 04/11/2022