The inner cover is essential to the hive. It should be set directly above the uppermost box, beneath the outer cover.
Without the inner cover, it would be much harder to open up the hive, as the bees ensure that the cover is glued into place with wax and propolis. Luckily, it is easy to slide the hive tool under the inner cover, and with a simple flick of the wrist, pop it off to reveal the heart of the colony.
The hole in the middle of the cover has three purposes: it offers another route for the bees to take (rather than just going through the opening on the bottom), reduces traffic at the entrance of the hive, and helps with ventilation, both in winter and summer, by reducing humidity.