The GPS data is sent over the serial connection to the Arduino. The Arduino we are using only has one serial port. If you need more than one serial port you can emulate a serial connection through software, referred to as softSerial. The GPS shield we are using from adafruit gives you the option of using software or hardware serial and this is selected by the switch. All it is is picking which pins the GPS is connected to. So if the switch is in the wrong position the GPS is not connected to the right pins that the Arduino is ‘listening’ to.
More info can be found at adafruit on the product page and this link has a picture of the switch: