The pump is working upside-down as in the pictures. That means that air will be trapped in that cup (where your impeller shaft is). The yellow part is a capillary tube which with the help of the suction created by the impeller, will remove the air from that cup. (So keep it clear, I'm cleaning mine, each time when I clean the impeller).
Regarding the height, it needs to be as high as possible, without going over the flat surface and clash with the impeller.
If it's becoming loose is not ok, so then push it down a little bit more.
This item, under different shapes and colours, is present in all pointing down impeller, canister filters.