Where is it?

Its not even mentioned in the wiring instructions.

Do I need it?

I just paused my installation because I dont know where to connect the gray wire.

 

If you want to log peak knock it is. I had an SAFC 1 though which didn't hook into the knock sensor. I want to say that you can splice it into a wire off the knock control box though... that is, if you even have a Turbo II.

you can just skip it, it's not necessary