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that's the ECU, central computer for your vehicle. Should be stamped with "JETRONIC 2.2" or something like that. Don't crack it open, and be gentle with it since new ones cost something like $800 (although you can get used ones for less). Basically that item is where the reports from various sensors (o2 sensor, knock sensotr, etc.) are processed and proper signals are relayed to the engine (retard timing, etc.).
1988 was the first year of the diagnostic system I believe. Prior to that you don't have it.
CLEAN THE IAC. The idle fluctation with no other apparent problems makes this a likely culprit.
-rt
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