Here's how I "understand' it in my English major brain (I may have the science of it completely wrong and may be misunderstanding entirely how suspensions work).
I think it has to do with inertial force (a bump in the road at one end and the load [rider] at the other) and the progressivity of the spring. Let's say setting #1 is an uncompressed spring and it will respond (begin to compress) to a force of 1 pound. Setting #2 slightly compresses the spring, it 'stiffens' it because now it needs 2 pounds of force before it begins to compress. If the load remains the same, what happens at #2 when only 1 pound of force is applied? It's dissipated via shock or vibration which may be absorbed by the seat cushion (or cushion + my butt, or cushion + butt + spine).
Fortunately, it doesn't matter too much if my brain doesn't understand it, because I leave it to my ass and my back to make the final decision.