I have done a few TBI swaps.
OK, here is what "Chevrolet TPI & TBI Engine Swapping" says:
Regarding the P/N switch:
Some wiring harnesses ground the Park/Neutral wire so that the ECM always thinks the vehicle is in Neutral or Park. The reason is to prevent the SES (service engine soon) or Check engine light from being turned on due to lack of a VSS signal. The service manual states: The ECM uses the P/N signal as one of the inputs to control: Idle Air control; VSS diagnostics; EGR. If the P/N wire is grounded in drive, the EGR would be inoperative , resulting in possible detonation.
Without the P/N switch conected (grounded) the engine will run ok but engine speed may drop excessively when shifting into gear.
Regarding the VSS:
The VSS tells the ECM how fast the vehicle is going. Most people think the VSS is only used for for the lock-up torque convertor. The VSS is also used to control the EGR valve, the charcoal canister purge valve, the electric cooling fans, idle speed, and air/fuel ratio.
It must be emphasized that the VSS is used to control the idle speed when the vehicle is moving. Without the VSS the vehicle may have stalling problems under certain conditions. The reason an engine not equipped with VSS may stall is because when the ECM has the signals that indicate the engine should be idling (foot off gas, vehicle moving less than 2 MPH), idle speed is closed loop ( which is not the same as the O2 sensor running closed loop) and the ECM will try to maintain a programmed idle speed. If the vehicle is moving, the ECM opens the IAC (idle air control) a programmed amount, regardless of engine speed, which is usually a position that will make the engine idle about 50-100 RPM above the programmed idle speed. Stalling can occur when the vehicle is in the over-run condition (foot off gas- engine speed above the programmed idle speed) because the ECM will try to lower the idle speed to the stationary programmed speed. The IAC may not be able to open rapidly enough to prevent the engine from stalling.
Raising the minimum idle speed with the adjusting screw can eliminate stalling, but the engine will not run optimally without a VSS. Some Chevrolet engines are programmed to run lean under highway mode. Without VSS the ECM will not get the signals to run the engine for best fuel economy. There are also other programs in the ECM which depend on the VSS.