The groove is there to keep engine oil from migrating up the housing and leaking. Putting an O ring there will keep the vacuum advance from working properly. The grease cup on the side also has a spring and a plastic disc under it that puts pressure on the distributor shaft to keep it from wobbling and changing the point gap. Fill the cup with chassis grease (not wheel bearing grease) and give the knob about half a turn or so every oil change. There's enough grease in the cup to last several years.
Jerry

"It is better to be silent and be thought a fool than to speak and eliminate all doubt!" - Abraham Lincoln
Cringe and wail in fear, Eloi- - - - -we Morlocks are on the hunt!
There is nothing noble in being superior to your fellow man; true nobility is being superior to your former self. - Ernest Hemingway
Love your enemies and drive 'em nuts!