Don, 2 words. Throttle Valve. A simplified explanation is, The throttle valve (located on the side of the tranny) controls the internal transmission pressure based on the amount of opening at the throttle (or carb) and essentially tells the trans when to do what. From the clamping pressure in the clutch packs to upshifts / downshifts and when to allow overdrive.

If this was not at least close in adjustment, you would've smoked the trans by now. A friend thought that this connection was the old "kickdown" linkage. So he left it off and went for a quick testride. We had to tow him back after 2 miles!

Like you, I think your transmission setup is good.

My AOD uses this same technology and I have mounted a pressure gauge in the dash so I can monitor the trans pressure, by adjusting the linkage length at the carb I can control the pressure in the trans and change shift setpoints.