1. That is for the tach cable. There are 2 little gears in that housing and both must be good for the cable to turn.
2. The PTO is no problem if it works ok with a load applied. Most of them turn without a load. If it stops easily you won't want to spend any money on that part. Could you post the serial number of your tractor? I also have a 1955 super 55 diesel that my Dad bought new. # 19916-518
3. Enjoy your 55.