I'm not going to translate all of the manual for you, far too much text!
First of all they say the switch can be toggled while the Amiga is on, but changing it probably won't take effect until a reboot.
Upper position: needs no driver, but you only get DD floppy support.
Middle position: you need to load the driver after booting. It says it won't recognize the drive without that driver. It also says it offers additional functionality, after that's been enabled in the software. This offers features such as 960K disks, or compressed disks. You need to use the KCS floppy drive to be able to read these, of course.
Bottom position: this is the diskcopy mode, and the driver won't work (you can't use it as a floppy drive like that). You use the BLITZ! (DF0: to DF2:), CYCLONE (DF0: to DF1:), SIEGFRIED COPY (DF0: to DF1:), or SYNCHRO EXPRESS (DF0: to DF1:) software to copy disks with this mode. They state that the other floppy drive must be empty while doing this. And you can also copy with the switch in the middle position with CYCLONE V, but it won't verify. AMI can be used to copy when booted with the switch in the bottom position, after then switching it to the upper position.
Also, none of these programs can copy a HD floppy.
Hope this is of some use.