rotted rear diff damper shock

Hi, I have a beautiful 1996 XLT. everything is in tip top shape except I noticed the little shock on the rear diff is startting to rust up and rott. I guess it is a damper or a stabilizer. it is not my normal 2 shocks. is it really needed ? should I change it ? what will be the problem ( other than not passing inspection) if I don't change it ?

thanks in advance and I hope to hear your opinions soon