you need to turn the ratchet type thing inside the piston while it's out of the body, i think you can use a screw driver or something, turn it all the way and it should hold in the last cut out. then insert it into the body and fit it to the engine, once started the oil pressure will release the ratchet to where it should be.
i never used a red thing when i re-built my engine, so you probably wont need it. it definately isn't part of the engine or owt, so it must be some kind of fitting tool or checking device 
