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I would say it does 2 things 1. Seals the top compression ring 2. Slightly raises the compression ratio. That would raise the temperature of the air when compressed. On a diesel, the hot air of compression ignites the fuel. Too much oil can cause hydostatic lock which is bad. In this case a...

This is a case where a picture would have made a difference. Like a lot of people say to include pictures. hint hint

Did do a little research. None of the TM manuals showed the big yellow cap on top of the engine. Only thing I found was preheat for starting and compression release for hand starting. Did a search on L70AE engine and some show the big yellow cap on the valve cover and some don't. If you take the...

I stand corrected.

I could be wrong - the reason?

If it was mine, I would fill with the port that was the easiest. Just keep in mind that filling through the top port especialy on a cold engine it would take a little longer to get an accurate reading on the dipstick until the oil runs down into the crankcase.