The first setting, which is the one it's on right now in the pic, is fully open. Bees can freely come and go from the hive.
The second setting (Working clockwise) is a fully closed position. Bees cannot enter or exit the hive, and there is no ventilation through the exit. This is usually used during transport, and bees, being a diurnal animal, will assume it's night time. The drawback here is, as I said before, a lack of ventilation.
The third setting, at the top, is a queen/drone excluder. Workers can move through the holes, but drones and the queen cannot. Queens usually do not leave the hive except to a) mate, or b) swarm, so it can be used to prevent swarming (swarms will return to the hive without the queen's pheromones), and it can be used to prevent mating (when you want the bees to continue foraging, but you want the queen to wait until you can move the hive to a mating station before allowing her to mate. If you are trying to selectively breed your bees and have chosen NOT to allow drones from this colony to mate with queens, this setting can also be used to prevent drones from leaving for mating flights.
And finally, the mesh setting closes the hive but allows ventilation. The trade-off for the ventilation, however, is that exposure to the light outside can make them angry during transport (because they can't get out to forage - how would you feel?) During transportation in particularly warm weather, you might have to resort to this setting to avoid baking your bees alive.
Another funky beekeeping fact.