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The lever releases the winding mechanism, so the watch can be set.
All American railroad watches were, with some exceptions, lever set so the watch could not be accidently set.
As you can see the watch has some wear. It is not unusual for a watch to have this kind of wear at the point of the lever. This is an old Hamiltom 940. A railroad grade watch that looks like it saw a good deal of service.
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