Is this supposed to be a key for a r8 collet?

As mentioned, the "key" actually an extended tip set screw, is there to keep the collet from spinning when tightening or loosening the drawbar. I had to replace the one in my mill when I purchased it from a high school shop over 20 years ago. It's been intact since then with no problems. About the only way you're going to ruin in it to either under tighten the drawbar or use tooling that's technically too large for the machine.

I believe the largest collet sold by Bridgeport was 3/4", however many aftermarket vendors sell collets up to 1". There are even some tool holders out there that hold up to 1 1/2" shanks. You can almost be you're going to spin the collet in the bore when using something that large on anything other than plastic.

If you intend to replace the setscrew, I suggest you buy a quality one from H&R Machine repair. If I recall correctly they are 1/4" diameter, but a nonstandard thread pitch. I watched the posted video but couldn't get the audio to work so I'm not sure the thread pitch was mentioned. Also on many machines there is a second shorter setscrew that locks the extended point one in place.
 
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