Runt,
Not sure what the valve is for, but putting the "off" arrow toward either the 3 or the 1 will have the same effect of shutting off the line.
My guess is that you don't want water coming out of your pool and then out of the pump when the lid is off, so to prevent that from happening, you'd turn the valve to either 1 or 3.
A picture from a little further away would give us a better idea of what the valves are for.
Thanks,
Jim R.