The wire isn't removed. The test light is between one stud or the other and ground, with the wire connected. With it disconnected, the points wouldn't even come into play as a switch.
The layman's explanation -- that is the best I could offer -- There is always juice on the ground side of the coil or at the stud on the distributor. When the points are open without a test light, there is no circuit to ground and nothing's happening. When the points are open with a test light, the juice runs through the light to ground, lighting up the bulb. When the points close, they make a ground (very like a dead short but not exactly). Without a test light, they complete the circuit that lets the coil build a charge. When a test light is connected, they do the same thing because the current will take the path of least resistance (direct ground vs. the resistance of a bulb filament on the way to a ground), and flow through the points rather than through the bulb in the test light.
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Today's Featured Article - Restoration Story: Fordson Major - by Anthony West. George bought his Fordson Major from a an implement sale about 18 years ago for £200.00 (UK). There is no known history regarding its origins or what service it had done, but the following work was undertaken alone to bring it up to show standard. From the engine number, it was found that this Major was produced late 1946. It was almost complete but had various parts that would definitely need replacing.
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