Neutral Saftey Switch- Automatics have a neutral safety switch, so that the car can only be started in park. For a manual you do not need this, and the switch must be by-passed or the motor will not start. On early Mustangs the four-plug harness sticks out of the firewall above the master cylinder. Two of the wires control the reverse lights, the other two control the neutral saftey switch. Splice two of these wires together and you've bypassed the neutral switch. Which two wires? You'll need to use a voltmeter or take a couple guesses to find out! On other cars you can check the wiring diagrams in a shop manual, or trace the wires from the original automatic shifter. The backup lights can be made to work by connecting the other two wires to the two leads on the T5 case.
I had this on my stock transmission. Bought a G-Force T-5 and it didn't have the sensor so I have a plug on my car that is just hanging there. No problems with anything, wouldn't worry about it.
I forget what it's for but I believe it is something with the neutral safety switch. Not a big deal.