Yep...definitely detonation sensor. It would pull timing back if detonation was detected. It may mess up your timing if that shielded cable is damaged. It should just pull off sideways.
My original 1981 turbo 4.9 was also Canadian and had one, including the ESC aka CCC.
When I put in the 400, I took all that out and just used a different module (4-pin) in the distributor and eventually replaced that with an MSD box. For mine, the temp sensor was on the drivers side head, but I moved it to the coolant crossover.