it selects which pickup u are going to use.

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Set up Questions? ...Q & A Thread

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Ones at the neck, the other is in the middle?

Pickups tend to sound bassier and fuller the further from the bridge you are. The middle pickup is also there to combine with the bridge or neck to give different sounds.
Actually called Mark!

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it depends what stlye guitar you have.
with 3 single coils (kind of looks like this: / | | ), it changes between bridge (the tilted one), bridge and middle together, just middle, middle and neck, and neck.

With 2 humbuckers (kind of like : || || ), it switches between just the bridge pickup, both pickups, or neck pickup.

The sound differance is (usually), the bridge pickup will have more treble to it and be better for most heavier sounding stuff, and the neck sounds 'warmer' and is better for cleans (generally)

Hope that gives you a good idea