After some time on the phone explaining that this made no sense with the plumber, he returned to the house to look at the whole setup. Said it was some type of pressure relief. Seems like the original installer tried to get around having a thermal expansion tank by putting a T on the T&P line and running it through this thing and back into the cold water line. Had me completely baffled.
Georgia code apparently allows the up & out run of the line, but still doesn't allow a T anywhere on it. They ended up cutting this out and running the T&P drain up and out.
Plumber