Its the rubber bump stop. I would assemble it like you have in the photo in post #1. Adjust the ball joint like Captain said and tighten the lock nut. Then you can turn the bump stop by hand until it reaches the lock nut. I don't think the rubber will take much tension, so hand tight will be enough.

These bump stops look thicker than the ones I have and have seen. The ball joint section could be shorter to compensate for this. If not the bump stop could have an effect on the rack stroke 60.7mm which in turn will effect the turn radius a bit.

Chas

And if you can't get that bump stop firmly against the back side of the lock nut, no big deal... It will be pushed into place the first time you steer to lock. The end of the rack will push it outboard.