"I think the steel washer is acting as part of the seal"
When the retainer cap is tightened.
The two steel washers are squishing the rubber seal, making the seal bulge on the inside & outside.
Which makes a seal on the torque tube housing and the inside of the retainer cap.
But you are correct the inner washer in the retainer cap
is also doing the sealing.
But the threads themselves are doing the sealing too.
Keep in mind we are not dealing with water and nothing is under any pressure, we are dealing with 90 weight gear lube.