Fiji and Minidunger,
The cap and plunger has a one way valve on the end. It slows the rise of the piston when accelerating .This is what gives the richer mixture needed for acceleration. When you hit the throttle the piston needs to drop immediately to richen the mixture.
As speed increases the damper allows the piston to slowly rise until the leaner mixture needed for steady speed operation is reached. If it didn't do this the piston will rise too quickly and lean the mixture off too fast causing a flat spot, etc.
Not all cap and plungers are created equal. There are several different types of cap and plunger assemblies, some for different types of SU and some with different plungers and initial free play for different applications.
As long as the plunger is fully immersed in the oil it will work OK. The level should be just above the piston rod to provide some lubrication to the piston rod assembly as it moves up and down.
When you test the piston movement there should be resistance in the up direction and it should drop freely in the down direction. Use either the piston lift pin or stick your finger in the carb inlet and move the piston that way.
Hope this helps.
RonR