It is a phase switch. You use it to find the smoothest transition between the subs and the midbass. It has the same effect as reversing the wires on your subs.
It doesn't matter if your basket is in or out. What you care about is hoe it sounds and the relative phase between your subs and high frequency drivers. Listen to the system with the switch in both settings and leave it where it sounds best to you. Turn the system off before moving the switch from one position to the other.