The flametrap is part of the crancase ventilation system. Pressure tends to build up in any crankcase due to oil vapor and combustion blowby. The flametrap is in the middle of a line that runs from the air intake to the crankcase and provides a little suction to keep the pressure in the crankcase low. I guess the purpose of the flametrap is to prevent ignition of the oil vapor in the crancase event of a backfire (otherwise, if you had a backfire it would probably wreck the engine, blow off the oil pan). If the flametrap plugs up, there is no place for the pressure in the crancase to release, and it tends to find a way out through various seals around the engine (like the rear main seal, front cam and crank seals, oil filter base, etc.). There is a long description in the 700/900 FAQ section. some of the details will be different for an 850 probably, but the general principal is the same.
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'95 940 Wagon, '85 240 Wagon (RIP), '91 740T Sedan