EGR stands for Exhaust Gas Recirculation, a little of the exhaust gasses are recirculated into the inlet manifold, controlled by the EGR valve (electronic or pnuematic) from the ECU

Theoretically this reduces emissions, in practice it contaminates the inlet manifold with carbon/ gunk and if (when) the EGR sticks open, clouds of smoke and/ or poor running, even if it is working correctly it can cause flatspots and hesitation

Blanking the EGR valve (solid, stainless steel plate) can fix a faulty EGR valve, prevents further contamination to the inlet manifold, and can reduce flat spots, hesitation

Blanking an EGR vakve should not cause a UK MOT failure, (only particulates(smoke) is measured on a diesel) and can often actually help

On some Euro 4 Ford engines, blanking the EGR can cause the EML (Engine Management Light) to come on, (amber coil) this is about the worst that can happen, this can be ignored or reset with a code reader - i think yours is a Euro 3, so this is unlikely to happen

If you have the 1.8 TDCI, i think the EGR valve is on the inlet manifold on the back of the engine - you put the blanking plate between the EGR valve and the inlet manifold