You really need to get that cleaned up. It has so much gunk on it that it will slow down the heat transfer. I'm surprised that you have not had overheating from that. I wonder if your entire block is that bad. The freshwater side of the heat exchanger should be spotless. As for that flap, as others have said it just looks like someone tried to make a hole for the overflow using a punch.

Your exhaust manifold/heat exchanger needs a complete cleaning if not replacement

Maybe you can drill through that flap from the outside while it is out.