Hello. The Washburn Lyon is pretty similiar to my Fender Stratocaster except for the last pickup. On my Fender, the pickup configuration is single, single, single. On yours, it's single, single, humbucker (or dual coil..cos its two coils)
The switch on your guitar (called pickup selector) matters a great deal in the tone you are getting out of it. Firstly, there are 5 different positions you can play with.

1st position (also neck position) - engages only 1st pickup
2nd position - engages 1st & 2nd pickup
3rd position (also middle position) - engages only 2nd pickup
4th position - engages 2nd & 3rd pickup
5th position (also last position) - engages only 3rd pickup

Choosing which position to play in and using different pickups with each position can alter your sound completely. For example, rockers generally favours a humbucker in the neck position (1st position) for those mean tones.

For the volume and tone knobs, I have written a post on my blog for you! Go to http://guitareffectssecrets.andy-ng.com/27/guitars-volume-and-tone-knobs/ now. On my blog, you can find answers to your amp question too. Just click around!