What is this and what does it do?
 

I am still learning about the W126 (420SEL) I've bought. Please help me understand what this is.

Fuel pump and fuel filter

Thanks!

Makes sense given the tank's right above it, huh?

Does the filter have to be changed/serviced at some interval?

Yes, its good to change it every 35-40,000 miles or so. They are not very expensive, but you will need to get new crush washers to install the lines back onto them.....and if the lines are real rusty you might need that too....they look somewhat rusty on your car.

Simon, per the Maintenance Booklet (in the black pouch with the Owner's Manual) the fuel filter (the large canister in your pictures) should be replaced every 60,000 miles. Your car has 2 fuel pumps. There should be a black plastic cover protecting the fuel filter and fuel pumps from road grime. Based on the condition of your fuel filter, fuel pumps and metal fuel lines that cover must be missing from your car.

There is a cover? I have worked on several 126s and have never actually seen one....... Always assumed there was one, but after like my 6th 126 and not having seen one, I just assumed that there was no cover.....

Got a part number?

OP - Looks like your differential is losing oil. Better get that checked....

EPC shows "protective cover" p/n 126-478-03-37. That's for 420SEL. FSM says to "remove protective cover" as the first step to doing filter replacement, etc.