The "spacer" this fellow made and the "spacer" in the SlapMaster kit use that lip to pick up the outer race area of the bearing rather than the inner race like the current collars from just about all the axle manufacturers (AE, CRC, IRS, etc) do. Years ago cars used to come with thrust bearings as part of the axle assembly (remember the big ol' blue cage Associated ones?) but in what I can only guess is an effort to reduce parts count they went to these aluminum collars that pick up the inside race. That way the diff still spins relatively freely but by picking up the inside race it means that ANY load is transmitted sideways through that outer hub bearing. The outer hub bearing is supported from the inside at the outer race by the hub itself. By having th collar pick up the inner race it means that the pre-tension on the diff creates a constant side-load and any side impacts with barriers create comparatively massive spike loads...all into a bearing that is absolutely not designed to accept side loads. This leads to frequent bearing failure here which is, generally, why/when diffs start to feel "notchy".

By picking up the outer race loads are transmitted only through that outer shell of the bearing. It is still supported on the outside by the hub but loads are applied to the outside as well.

Why plastic? Well, to be effective it needs to be from certain families of plastic. The reason SlapMaster uses delrin is that it has somewhat elastic properties meaning it can, to a limited degree, serve as a spring. Think of the Belleville washer that is in the diffs now (and back in the days of ol' blue from AE)...it serves as a spring and in doing so creates a slightly larger "sweet spot" of adjustment. Without a spring or springing medium you really have no "range" of adjustment. It goes from not tight enough to too tight in an instant...if you're lucky you can hit that exact (and it has to be exact) spot where it is just right.