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It's part of the positive crankcase ventilation system. On older FI B series Volvo's, this hose just led down the front of the engine to vent the crankcase of any blowby.
You have 2 options; 1. leave it as is, as there's really nothing wrong with this setup, or 2. remove the hose, and plug the air box wiht the rubber grommet that goes in it's place.
My guess is that the PO of the car needed to have the PCV system intact and operating in order to pass emission testing. As a result you see the current setup. If you arent' subject to this, I'd choose the latter of the 2 options I mentioned above.
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