If I had to guess I'd say it isn't shorting it out it's taking power from the ignition switch to the indicators. On my non-MPI setup the purple wire that supplies the Horn switch also supplies the indicators via a little black wire between the two switches, I suspect that is replicating that. You might bodge it if you wanted to swap from switched live to unswitched live perhaps, or if you hacked it about and missed the little black wire and wondered why your indicators weren't working. But that's a guess.
It all looks a bit of a mess and if it's anything like mine was you'll find some burnt wires under there. So that I was sure it was safe I would cut out the crap and reconnect with a proper crimping tool and trace all the wires back to the right fuses with your Haynes manual so you know everything is getting it's power from the right place and that none of the fuses are over-loaded. I'd check the fuse ratings are correct for the circuits as well.
I'm rewiring my car at the moment because of stuff like that and have ended up fitting new fuseboards and using some 200A relays to control the switched/.unswitched 12v feeds to avoid so much load going through the ignition switch. Have discovered some funny ways of wiring things back to power that seems to be standard. Eg last night I traced the 12v to the rev counter, it gets it's power from the windscreen wiper motor!
Good luck!