The purpose of the spindle spacer is to make up for the thinner stack height of after market camber plates versus the OEM original top mount. This will bring the ride height of your E46 up without having to use spring preload which reduces rebound travel.

When installing the spacer, it will slide down inside the spindle clamp. It does not matter where the slot in the spacer lines up. What does matter is the locating tab tack welded to the damper should line up with the gap in the spindle clamp. Refer to the picture for guidance.