It’s probably a pick-up selector switch. Under the strings on the body you will very most likely have two or three pickups – think of these as being like microphones – they are basically coils of wire wrapped around magnets and they “pick up” the vibrations of the steel strings on the guitar.

The switch you mention will select individual pickups and in-between positions. On a 2 pickup guitar this would be: neck, neck and bridge, bridge. On a 3 pickup guitar this would be: neck, neck and middle, middle, middle and bridge, bridge.

Try the different positions and listen to the sound you get – each position will give you a different tone. Obviously, you need to have the guitar plugged in – you won’t hear any difference otherwise. The pickup nearest the neck will contain more bass frequencies, whilst the pickup nearest the bridge will be more trebley (because the string can’t vibrate so much here).

It’s similar to playing an acoustic guitar and listening to the differnt tone you get fingerpicking on different areas of the strings length.