I would like to expand on Russ's mention of high tension ignition. When the points open the capacitor is connected in series with the coil.
The voltage/current generated by the colapsing magnetic field charges the capacitor. This is the voltage/current source that is induced into the stepped up secondary winding.
A coil opposes current flow while a capacitor enhances current flow.
The enhancement of the capacitor balances out or cancels the opposition of the coil.
The result is a faster colapse of the magnetic field and the highest posible voltage generated in the primary ckt.
It's true that the capacitor reduces or prevents arcing at the points but it's main function is to provide a ckt path for the coil after the points open and to speed up the colapse of the magnetic field. Hope this helps a little, Ralph in NC