That terminal is used to provide full battery voltage to the upstream (ignition switch) side of the coil during cranking. If your electrical system has been converted properly, there should be a ceramic resistor inline between the switch and the coil to drop the voltage to about 9 volts or a little more during normal running to protect the points. Because the load of the starter drops the voltage, it's necessary to bypass the resistor so there's a hot enough spark for a good cold start. Just connect a wire from the small terminal to the coil + terminal.

Edit: That switch was original equipment on 12 volt starters from mid-year 1955 and newer engines, but it's a bolt-on swap for the 6 volt starter switch which did not have (or need) the bypass terminal.
Jerry




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