It is a capasitor which is a small part that screws to the side or sometimes inside the distributor. They store the electrical charge when the points open (i am going from my tech college days from memory so I may be off a bit). When the points open the curcuit is broken the eletrical field in the windings on the primary side of the coil colapses (the negative and positive side) and a secondary high voltage occurs as a result to the secondary side of the coil (the part of the coil where the coil lead comes out) thus causing a spark. The condensor is an integral part of this and if not working properly will either not allow any spark or allow the spark to break down under load. As Rob said replace it and the points also. I hope I have got all this correct as it has been almost 18 years since I went on my mechanical college block release and I may have have missed a few thing.
Cheers
Todd
