The telescopic action of the forks would, ever so slowly, introduce air past the oil seals into the system when the fork extends. This air increases internal pressure, resulting in harsh fork action. The purpose of the bleed screw is to let excessive air escape once internal pressure overcomes the valve spring.
More often than not, the ball, spring and screw are corroded to a horrible mess and rarely seal the bleed hole reliably, allowing the fork to work sort of satisfactorily. This type of valve is also found on the 35mm Ceriani forks fitted to the 750s.
Modern forks make use of a purposely induced air cushion and are generally completely sealed. Marzocchi M1R can be pressurised through a Schrader valve atop each stanchion but in reality actually pressurise themselves in use and excess can be let off easily through the valves.
To check if the bleed valve is working, the hex recess can be filled with a little soapy water and the forks pumped several times in quick sucession, bubbles should show in the liquid. If it's blocked, nothing. If the valve isn't sealing properly, the liquid will quickly disappear...
piet