It's a crankcase breather filter and water separator. It's function is to take the piston ring blow by, hot oil vapors, and water condensate from the engine crankcase and feed them to the carburetor inlet for subsequent burning by the engine cylinders. Earlier models simply dumped these carcinogens into the atmosphere to settle into the lungs of mammals. It has nothing to do with exhaust gas recirculation found on many autos.
There is no inspection in Cal to require it still function on these old bikes. Though some believe there should be. Then again there are some who believe all vehicles over 10 years old should be scrapped. But, I digress...
The small vacuum that the stock breather set up applies to the crankcase, actually speeds the removal of condensate from the crankcase, extending the useful life of the oil, and the engine. Don't know how to quantify it though, as there are so many other variables to engine longevity.
Cheers,