Can anyone tell me what the fuel separator does? I'm wanting to put a new fuel cell in my hatch and am wondering if I need the separator or not.

It's part of the emission control system.

 

There are 3 hoses: two from the engine compartment, and one from the fuel tank. Excess fuel from the carburetor or the injection system is returned to the fuel separator.

 

The fuel separator lets the excess fuel drain into the tank, leaving vapours behind. When the engine isn't running, vapours can build up in the tank. These vapours pass through the drain hose from the tank to the fuel separator. The fuel return and fuel drain lines are at the bottom of the fuel separator.

 

The vapours are sent from the fuel separator through the second hose to the charcoal canister, where they're collected. The vapour line is at the top the fuel separator.

 

When the engine is at operating temperature and running at more than 2,500 RPM, the purge control solenoid valve opens. This solenoid controls a hose between the charcoal canister and the intake manifold. When the engine is running as stated and the purge control solenoid valve is open, intake manifold vacuum draws accumulated vapours from the charcoal canister into the intake manifold, to be burned by the engine.

 

Note:

I might have some of the details wrong, but that's the principle.