Cobra Kai season 3 sets up The Karate Kid Part III's villain Terry Silver's return in season 4. The Karate Kid sequel series might have a new generation of fighters in its cast, but the show has also primarily continued the stories of Daniel LaRusso (Ralph Macchio) and Johnny Lawrence (William Zapka). The next chapters of their lives opened the door for Cobra Kai to bring back several other Karate Kid characters.
Cobra Kai season 1 brought back Randee Heller as Lucille Russo and ended with Martin Kove returning as John Kreese. When the show returned for season 2, the rest of Johnny's teammates from Cobra Kai came back for an episode. Now that season 3 is out, Cobra Kai has brought back several other characters from past films. Elisabeth Shue made her long-awaited return as Ali Mills, but the season also brought back The Karate Kid Part II characters Kumiko (Tamlyn Tomita) and Chozen (Yuji Okumoto). However, the show also briefly featured a younger version of Karate Kid 3's Terry Silver and set him up for season 4.
Terry's role in Cobra Kai season 3 comes through the flashbacks to Kreese's past. They largely focused on his time as a soldier in the Vietnam War. His accomplishments led him to be recruited to a special ops team where Silver is his teammate (or at least, it's heavily implied that this Silver is a young Terry Silver). However, one of their missions goes awry and leads them to be captured. The team periodically has to fight each other to the death for the entertainment of their captors. Silver was picked to fight their commander, but Kreese volunteered to take him on instead. When Kreese managed to win the fight and help set the team free, Silver told him, "I owe you man. You saved my ass. Anything you need… I’m there for you. Your whole life. You hear my Johnny? Your whole life! I owe you."
Thanks to Karate Kid 3, viewers already know that Kreese has called in a few favors with Silver over the years. Silver was the one who bankrolled Kreese's Cobra Kai operations before. Silver also took a special interest in karate and became more hands-on in Karate Kid 3 to take down Daniel. This plan ultimately wasn't successful, but Kreese ends Cobra Kai season 3 by calling in another favor. Although the show doesn't explicitly say who is on the other line, the flashback to Silver saying he'll always be there for Kreese no matter what essentially confirms he is on the other end of Kreese's call. Kreese acknowledges that it has been a while since they've spoken, but another team-up appears to be coming in Cobra Kai season 4.
Silver returning for Cobra Kai season 4 will give Kreese and Cobra Kai another powerful ally at the perfect time. Daniel and Johnny are trying to put their differences aside to take Kreese down. While they both have a history with Kreese and want to take him down, Johnny has more animosity for Kreese at this point. But, Silver's return will give Daniel an enemy of his own who is tied to the larger goal. He will also give Kreese someone he can count on to carry out the next stage in his plan and possibly even continue funding Cobra Kai's efforts.