That's the regular water exit. It has a small restriction in it. Basically... on the water and running... water comes out the exhaust, the pee hole, and that port.
Your flush hose connection is T'ed into that hose. IF... you want a better flush (if you are in salt water) then you can plug it during flushing. BUT... if you forget to unplug it... you will overheat the engine.
Since you aren't in a state with salt water around it... you really shouldn't be running it on the hose very often, or for very long. The carbon seal (drivshaft) is cooled by the water the boat is sitting it. SO... when it's on the hose... you can overheat, and destroy the seal.