IC7 controls two things.
- The pin 13 LED
- The FET T1
T1 controls the connection between the usb power bus and the 5v bus on the main board. If Vin is less than 6.6v, the usb and the main power bus are connected to power the Arduino from usb power.
The Mega2560 has problems when powered by the Vin (barrel jack) and the usb simultaneously. If you had your Mega connected to usb and external power applied to Vin, it could have damaged the board. Read this topic about that:
http://arduino.cc/forum/index.php/topic,82046.0.html