That plug is audio and control data connection for the Factory VW CD changer. Yes, you could have BOTH a single in-dash cd player and a CD changer in the trunk. This way you could pop-in your friend's CD easily - even if you were cool enough to have a changer.
If a factory CD changer is installed in the trunk and you push "SELECT" a second time, the light beside "CD Changer" will illuminate and you will now be controlling the changer. This is why the words "CD changer" are written on the front of your single-cd deck.
There is an adapter available to make the CD changer port into and Aux-IN. It will work the same way. Push "Select" a second time, "Cd changer" will illuminate, and you will be listening the the AUX-in.
www.crutchfield.com will probably have the adapter you need. I believe it is the USA SPEC DF-VW, but you'll have to look it up.
I hope this helps.