Pro Circuit Pipe

Just a quick question. While changing my top end a few weeks ago, I forgot to put the washer that goes in between the pipe and the exhaust port. I rode a few times this way seemingly without a problem. Yesterday I went to replace my old plug (have been using same one for over 6 months) and noticed how the insulator had gone from thick black to a light gray.

Does anyone have an explanation for this? What's the purpose of this washer? Is it needed? Why did my plug start indicating I was running a good mixture...

All oddities.