one will be the neck pickup, so called because its close to the neck. and the other will be the bridge pickup (cos its near the bridge ;) ). the neck pickup should be more trebely. the middle position on the switch will be both together.
um as the knobs go. i dont know how many you have but there will normally be at least two, a volume, and a tone controll. the tone controll allows you to cut away some of the treble in the sound. if you have more controlls you will probably have particular tone or volume controlls for each pickup.
these controlls only make a difference when playin through an amp.
gain produces distrortion. it also increases violume although thats not its main function. try put the gain up to full, turn the master volume (it may just be called volume) down a bit. and the notes should sound more 'rockish'.
as to playing electrics i learnt on one, and when i play acoustic i play a steel strummed guitar which has got roughly the same neck proportions as an electric rather than those like a classical guitar. try arching the fingers more.