Here is a post I found, but it doesnt clearly explain why arcing is suppressed with a cap(acitor)
How the Ignition System Works
by Malcolm Holser
The way the ignition works is this: You connect a coil to some electricity, and it builds up a magnetic field. You stop feeding the electricity, and the field collapses, inducing flow. The voltage, in this open circuit, builds rapidly toward infinity and eventually it must go somewhere, and arcs across whatever is handy.
Relays do this, and generate a back-spike when they are disengaged, arcing across the contacts of the controlling switch. Often, a "diode clamp" will be placed across the relay coil to prevent this. (always in electronics that cannot tolerate voltage spikes).
The ignition coil is really two coils intertwined, with the leads to one going to the spark plug, and the leads to the other going to the points. Your points close, and a magnetic field builds up. They must stay closed long enough (they DWELL closed for a bit!) to energize the field. They open, and the field collapses. The inductance of the collaspsing field does not care which of the two intermingled coils created it -- it dumps into both, but because of the way they are wound, it mostly dumps into the spark-plug side. Enough gets into the points-side, though, that there will be a spark across them as well. The condensor is there to absorb this. Without a condensor, your ignition will work fine, but your points will very rapidly pit because of the arcing, and may weld themselves together. Alway replace the condensor with the points -- it is more common that a poor condensor has caused the points to fail than the points wearing on their own.