Paul,
The coil pack provides electric energy to fire the spark plug. There is one coil pack per cylinder. Each coil is controlled by the ECU. The ECU recieves input from various sensors and releases several ten-thousands of volts to the spark plug. If you remove your plastic engine cover, you can see the coil packs.
Coil failures are very common on E46 BMWs; do a search and you'll find that these need to be replaced on a regular basis. There was a revised coil issued in approximately 2002, but the new coils fail also. Good luck with the remaining coils in your car. Symptoms of coil pack failure include misfire and an associated SES light illumination. If you use a code scanner to read the OBD2 codes, you'll find that one or more cylinders has suffered a misfire.
