What kind of component is this? And is that crack normal or is it a sign that it's bad?
Spark Gap over voltage protector.
Here is another E.SE question relating to a similar air gap component.
The component could also incorporate a capacitor or MOV (metal oxide varistor) that the lead wire straddles and the spark gap is there to protect this component or provide additional protection.
The component lead wire was a continuous inverted U moulded into one or more layers of epoxy. The component is then cut with a fine saw with a selected blade thickness to set the desired gap in the top of the wire loop. The ends of the cut component lead are the flat embedded electrodes of the spark gap. Having decent gauge wire in a heavy epoxy body allows for decent heat dissipation.
The illustrated component manufacturer MDC also sells varistors and as this device is missing a capacitance rating it is more likely a plain spark gap or a varistor with a spark gap.
There is a similar looking product called variously a GAP-KAP or GAP CAP that incorporates the capacitor and protection spark gap. These devices are found in higher voltage power supply circuits, CRT electron gun circuits and also in the front end protection of some (including Fluke) digital multi-meters. Component failure is often characterised by burn marks in the gap area.
Just to speculate, but it might be possible in some variants that the epoxy will char and swell and short out the gap with a continued over voltage condition and blow a protection fuse.
It looks like some of the Fluke meters as described in this forum thread come with spark gaps that look like this component and have had them replaced with MOVs in later design revisions. Components with kV ratings in places that should never have high voltages present are going to be some kind of protection device. It also looks like the charring may act as an optical and electrical failure indicator.