Difference between 86 & 89 Carrera engine
 

I’m in the process of replacing a 1989 Carrera engine with an engine from a 1986 Carrera.
Other than the clutch and flywheel, what other parts do I need to swap over?

They are plug and play as far as I know. The only "difference" I'm aware of is that the base idle adjustment for the '86 will be 800rpm vs. 880 for the '89. The upshot is that when you install the '86 in your '89 it may idle funny until you adjust the idle.
-Chris

Where did the extra ten horses come from for the 87 and up model Carreras, the brain?

If you look at the ignition maps it's apparent some of it did. I'm not sure how much was DME and how much was on paper.
Remember, Porsche's stated HP figures are minimums. If Porsche found only a few motors didn't make the minimum they could have just revised/restated their numbers.

For example: If Porsche found that all the motors were making say 5 hp more than minimum they could have restated their horsepower figures without any changes to the motor. Add another 5 hp from changing the DME and you've got 10 more hp 207->217.
-Chris

Some of the studs for the transmission will probably be different (G50 vs 915)