That part goes on the end of the clutch cable, kind of a safety stop. I use the threaded hole in the arm as well. The 49cc I just got doesn't have a setscrew, just that little collar but it has a machined place for that little nubbin to fit in.
One thing I did no one else does or so I've observed is I spread solder up and down the cable to make it tougher and less likely to get cut with the setscrew. Also, grease the cable, operates smoother and makes the cable last longer.