It does a bit more than that, Ian. It's very much an integral part of the depth adjuster system, and its dimensions are calculated pretty closely to give the blade a useable range of movement. There isn't a lot of wriggle-room, if the distance from edge to cam slot is out by 2-3mm it can mean having to have the thumbwheel almost off the stud or hard against the frog in order to get the cutting edge in action (assuming the cap-iron is set at somewhere between 0.5-0.8mm from the edge). I learnt this the hard way when I made my first cap-iron & wasn't as careful with my setting-out as I should have been!
Mike, your blade problem gets curiouser & curiouser. If the blade assembly is flopping from side to side, there are several things I'd check immediately.
1. Lever cam - you say it's tightening , so that should be ok.
2. The cap-iron screw - is it tightening the CI against the blade firmly? Sometimes bodgy screws don't 'bottom out' & tighten the assembly sufficiently. This is more likely to affect depth adjustment (the cap-iron can't drag the blade along when you move it), it shouldn't affect
lateral adjustment much because the lateral adjuster engages the blade itself.
3. Which brings us to the lateral adjuster - is it engaging in its slot in the blade & allowing the blade to sit properly on the frog? The size of the slot was changed on American Stanleys so that early adjusters don't fit in the narrower slots of later blades, but I think manufacturing started in England long after that happened, so you are unlikely to encounter the problem unless someone has done something very odd.
As I said, the 'solution' is likely to be quite simple, just work from basic principles & you should be able to figure out the source of your problem(s). I hope you haven't been unlucky & scored a "Frankenplane" - you can get some very incompatible mixes when folks who don't know what they are doing start mixing & matching parts from a bunch of different planes!
Cheers,
Ian