This small red plastic item is called an "anti-short bushing." Pretty self-explanatory name. It is a bushing that prevents shorts. A bushing is simply a part or piece of material that is inserted into a hole or opening where a sharp edge could do damage to the thing that is meant to be inserted into that hole. Like this one here, they are often shaped like a collar. This anti-short bushing, or "redhead" as it's nicknamed in the trade (everything has a nickname in this trade...lol) is used with armored cable, or what we call BX. BX is a metal-clad, factory-made cable assembly that comes in coil. It is comprised of 2, 3 or 4 wires inside a metal shield wrapped around the wires as a protective jacket. The metal shield on the outside looks like an armadillo's armor. In most unfinished basements of a certain vintage, you will see it run all over for electrical lighting and outlets. Years ago it was allowed for use in most locations.
In 1920s and 30s to late 40s homes, it is very common to have the original overhead lighting piped in black iron rigid conduit, with cloth-covered wires pulled into that piping, and to have first-generation BX cable run from the overhead black iron boxes down the walls to the outlets. It was an easier product to install than rigid conduit, which had to be cut, bent and threaded. This could simply be fished into the walls. And BX was a step up from Romex, the cable assembly that preceded it, because it had a metal shield. This provided a grounding path (Not a great one, but certainly better than totally ungrounded Romex) and also better mechanical protection for the wires. First-generation BX had cloth covered wire in it, and should always be replaced when possible. Later generations of BX cable replaced cloth wire with TW and THW wire as plastic came on the scene. A bonding wire was added to improve grounding over the years. Nowadays, modern BX has its own fully insulated green copper ground wire in addition to the current carrying conductors. It is still useful for the same reason as 60 years ago. It's flexible and you can fish it into existing walls without having to tear them down or cut a massive channel in them. But you have to know how to use it safely, and you have to use anti-short bushings. Here is what happens when you don't.
I can't believe I'm saying this, but When I started in this business, kid, things were different. LOL. I laugh to hear myself say that. In my memory I still see the faces and hear the voices of my dad and his whole cadre of guys in the trades-WWII vets mostly-who were the "old-timers" when I was a young pup in the late 70s. When my dad was an apprentice, the "old-timers" were the WWI vets, the guys who build all those 1920s buildings that made Chicago famous. When he was an apprentice, all pipe was threaded, and there no "wire nuts," (Those colored plastic caps that go on splices) He used to have a ladle that he carried, and melted lead in it, When the lead was melted, they dipped the electrical connections in the molten lead and it solidified around the copper wire, making a continuous metal connection from wire to wire. Then they wrapped it in black friction tape. Again, no plastic tape.
So, getting back to the story at hand. When I began in 1978, TW wire was the most common type in residential and commercial wiring. It was a plastic based product, but it was much softer than the THHN wire we use now. (All of these letters refer to the insulation type, not the actual copper conductor. That hasn't changed in my lifetime) The TW we used to install was much more susceptible to being cut or nicked while you were installing it. Catching the wire on a sharp edge of the junction box, or on a piece of conduit that was not fully reamed to a smooth surface would cut or gouge the wire. If it was a hot wire, and that bare copper portion you just accidentally created made contact with the metal inside the box, BOOM! A big spark, the smell of burnt plastic, and the hunt was on to find where in the circuit the short was. If it was in the box, you could usually find it by the big black scorch marks. If it was in the pipe itself, you might have to re-pull a lot of wire until you found it. Some times, the exposed bare copper portion of the hot wire would be laying in the pipe in such a fashion that it was not making direct contact with the grounded metal, and it would remain "fine" for years. This is often the case with nicked wire in an outside or underground conduit. It will be "fine" for years, maybe decades, until water gets in, either through direct seepage or via internal condensation. Then the water creates a path of current flow between the exposed copper portion of the wire (that had previously been in contact only with the air,) and the metal wall of the pipe. BOOM! There's your short. Time-delay style.
I hope this has been entertaining and informative, because I'm down to the last picture and have yet to get to the specifics of this particular job hazardous situation. Sorry about that, chief.
Long story short. The older TW wire in use when I first started was very vulnerable to these nicks and cuts, and you had to be MUCH more careful than today's THHN wire demands. Being the one who fed the wire required a much higher skill level than the one who pulled it, because you had to be very, very careful to feed the wire into the pipe smooth, straight, and keep it away from any edges. If it got cut, gouged or damaged, you were in trouble. The same reasoning applied to BX of this era. Even cutting BX was a much higher skill task in those days. The steel jacket was harder than today, yet the insulation protecting the inner copper wire was much softer. You held the BX cable on an angle and cut through it by hand with a hacksaw. You had to really be paying close attention to when you cut through the metal jacket, because you had to stop before your saw-blade cut into the insulation of the wire inside. Today, since the THHN wire inside is practically invincible, and the metal jacket is much lighter, you can just bend the BX by hand in a sharp 90 degree fashion until the metal shield snaps apart, then cut it with a tin snips or sharp pliers. In the old days, that would have never worked. You would cut through the TW wire insulation, for sure.
Since the BX metal jacket was often left with a sharp, ragged, rough edge when it was cut with a hacksaw, the manufacturers provided you with these anti-short bushings. You were supposed to slide them down into the freshly cut end of the BX cable. They would then provide a plastic shield between the sharp edge of the metal jacket and the insulated wire. So if the wire got pulled, pushed or yanked, it would not get yanked into a sharp edge that would cut it, and thus create a bare copper spot that could short out. Instead, it would get yanked into a nice protective plastic sleeve. They were a great invention. But guess what? They only worked when you used them. Which a lot of guys did not. "You don't need those damn things, kid!
Well, in this case, they did need them. In this case, the fellow who put this BX "whip" in the wall did not use redheads. But he did nick the hot wire at the point where it contacted the sharp edge of the metal jacket. There was a bare, uninsulated live hot wire that was contacting the grounded metal jacket. But this was a high-resistance short. It was not a full contact short that would BOOM! as soon as current was applied. It was just enough contact where the stray electricity would "fight" through the air gap between the conducting surfaces, not creating the large current flow that a direct contact low-resistance short would create. Because of that, it never created the current inrush/overload to burn out the fuse. But it heated and heated and heated, year after year, with each usage of the microwave pulling more electricity, creating more heat, slowly melting away the insulation on the wire, thus exposing more copper to create more surface area to bleed more voltage and get even hotter, like a snowball rolling downhill but in reverse. This high-resistance short acted exactly like the heating coils that glow red in the toaster. Eventually the heat was conducted by the receptacle itself, which over time burnt away (see the picture) and it also severely burnt the male prongs of the microwave oven cord. Eventually, the burning and melting became so sever that they shut off the microwave and unplugged it. That is when they called me.
They were under the impression that the outlet should be checked out "just in case." This client is an old friend, and I told her I definitely should look at it before they do anything. When I got there and opened up the junction box and removed the outlet, the evidence was clear to anyone who knew how to read it. The outlet was burnt beyond the point of use. The BX cable contained a hot wire that had about 60% of its insulation completely melted off, and the remaining portion burnt such that it crumbled in my hands. Fortunately, I was able to take everything apart, remove the junction box, tie off the BX whip with both tape and cable ties (if it fell back into the wall while I was working on it, the outlet would be gone forever. Don't ask how I learned that.) and then pull out just enough slack on the BX cable where I could carefully unwind and peel back about 3-4 inches of the metal jacket. This allowed me to get to 3-4 inches of wire that had the insulation yet undamaged. I was able then to use that portion of the wire to re-feed the outlet with clean copper wire that did not constitute a fire hazard. From there I just had to put a new connector on the cable end, (with it securely tied off) lower it into the wall, re-install the junction box, pull the cable end back up into the junction box and tighten the lock-nut, terminate the wires on the receptacle, tape it, and put on the new trim plate. Viola! Like new! In this case, much better than new, actually. Another reminder that you can never be too safe in this business, and there really is no such thing as a "5 minute job."