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Shifter Install

I'm new to the bike world and I bought this bike yesterday on craigslist and when the guy helped me get it in my car he took off both the front and rear tires and therefore took of the chain and I am just trying to reassemble everything.

Everything makes sense except for one piece. On the close up image, I see that the hook shaped piece will wrap around the axle and then I will secure it with the bolt. The little piece on top of the hook that is confusing me. You can see in this picture it is a small screw that has a tightening piece that is kind of "half-circle" shaped. I cannot for the life of me figure out what this piece does. The screw gets in the way so I can't put the shifter flush against the bike, I don't understand the function of this piece at all, and I'd like to figure it out instead of guessing and assembling the bike incorrectly. There is a washer on the axle also that I could put a few different places but I'm not as worried about that, unless it helps to deal with this mystery piece.

Any help would be so greatly appreciated, let me know if there are any other questions/information I can provide.

The Rear Derailleur (RD) appears to be what you are having an issue with; the shifter is the thing that controls the derailleur, and appears to be handle bar mounted on your bike.

Referring to the lower picture. Remove the rear wheel and set it aside. Loosen the hex screw on the RD's hanger (J shaped stamping) so that the RD can slide into the slot in the bike frame, with the back side flush against the frame. The RD needs to go all the way to the back of the slot, tighten the hex screw to clamp the RD in place.

The washers on the wheel's axle need to go to the outside of the RD on the right side and outside of the frame on the left side.
Nigel - I think this might just make sense. I'm very excited to try it. Thank you very much for the help I really appreciate it.

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