The top valve (red, port 1) is connected to your skimmer. The side valve (blue, port 2) is already connected to your center drain under the pool...that valve will then be connected to your pump, then to the filter and ultimately to the pool return. I generally keep the center drain valve in the 12 o'clock position as this gives me a 50/50 mix of water being pulled from the skimmer and also the center drain. This works great because it allows for the skimmer to do its thing and keep the leaves and such out, but also allows the center drain to the keep the water circulating from the bottom of the pool.
When it comes time to vacuum, I turn the center drain valve to the full port 1 (red) position to allow for maximum suction from the skimmer which is what feeds the vacuum.
I use the center drain port on full port 2 (blue) if I'm in the pool using a brush for a routine cleaning of the bottom of the pool. This allows me to just brush the dust or fine debris towards the center drain and onto the filter. I've been known to use the center drain on full blue also if I'm trying to heat up the pool a little quicker on sunny days because it allows for the colder water on the lower levels of the pool to be circulated to the top...it's a thing of beauty. I'll also go heavily towards the center drain value if there's a lot of activity in the pool because once everyone gets to splashing and stirring things up, the center drain really shines in helping to remove the fine particles from the pool. I try to avoid having it solely on the full port 2 on a regular basis if people are swimming because this does place all of the suction to that one port on the bottom of the pool. The covers for the center drains are designed to avoid someone being held down by suction by why temp fate...its just as easy to keep it mixed between the two.
Hope that helps...
helps spur a member to provide some advice. 
