Loop in Cold Water with Cylinder

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Randal

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I am changing a water heater and removed a panel on the wall. The pictures here show what I found. There is this big dip in the cold water line (It is behind some of the other pipes in the wall cavity) . It drops down and then goes right back up. In the center is a cylinder. I have no clue what this piece is.

The strangest thing is that the cold water seems to be supply to both sides. There is a loop in the system.

Can anyone tell me what this is? I want to just cut this out. But I do not know if it serves a purpose.
 

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