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The purpose of the small tank is to condense the moisture after the air has been compressed (and heated) then (for your age of vehicle) the air is passed through non-return valves to the reservoirs. The valve on the bottom of the small tank is an automatic drain valve which should drain off any condensed moisture from time to time (as the pressure fluctuates). You can 'drain' the moisture by gently pushing up the pin in the centre of the exhaust port (on the bottom of the drain-valve).
The non-return valves (on each reservoir) prevent back-feeding of air in the reservoir but offer no protection to the other circuit, so a major air-leak can deplete the air stored.
Later models have 'protection' valves that limit the leakage of air from a damaged system so that the air from the compressor (condensing tank) can be fed to other non-leaking systems and keep them operating (albeit at reduced pressure).
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