Hello Matt
I am assuming that your picture is sideways, with the probe pointing upwards (rather than to the right). My guess is that this tool has been used to check the depth of holes or borings made on the lathe, and the fixed probe is located against a datum on the work, rather than relying on the work always being chucked in exactly the same position.
Please note – I have been known to be wrong. Yes, even me (voice from the kitchen – especially you).
Cheers, Tim