In terms of your stem.... it would look a bit like this (if you removed it)
So basically.... as you do the bolt up, it pulls up the wedge shaped bit and jams it in to the forks. So guessing that the old bolt was knacered and he put something else in it's place. If that's the case the the top cap isn't doing a lot more than keeping muck out.
By the way - what exactley do you mean by, 'the collar that holds the stem on to the bike'? The big round bit at the top of the head tube (that's the tube at the front that the forks go through)? If so that's probably the top of the headset.
To be honest - I might be tempted to buy some tools (if you haven't got any) and strip the lot down to a frame and put it back together again. Really not that difficult and will give you a good idea of what you're dealing with and also is a good way to check that nothing cracked or broken.
To be fair, looks like a nice enough bike. Certainly worth putting some effort in to.
do i not need to keep the much out ?? I wuld have though that quite important...
'the collar that holds the stem on to the bike'? i mean the stem that has a saddle on top !!!
I have a few tools and will give the whole stripping it down thing a go whne i have time between work and kids .. I want to give the frame a good polish so it will help.
What specalist tools will i need. I have most general stuff. Is there many bike specific tools ? Is there any good onlime tutirials or indeed books that would help me ??