It's just a dust boot to help keep the pistons clean. Has nothing to do with how the brakes function*. I'd run it like that (it looks like it will still do its job), inspect it often, and replace when/if it gets worse.
* Worse case scenario, it might keep the piston from retracting but you should have enough pressure to extend the piston. Ie, you will still have brakes but that piston may not release once extended.
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