0 is what you set it at, 1-3 are arbitrary and just to be used if you're carrying heavier stuff in the rear and need to lower the light a bit.
The cut off line represents your setting at 0, which can be anywhere between those other two lines. My thinking is set it high as possible, and you can always bring it down with the knob if needed. I usually have mine at 2 or 3 for normal driving, and 1 or 0 if I'm on a less populated road but want to see farther without using high beams.
I just realized I set mine in the middle of a road trip, so my settings are off anyway since I had stuff in the rear and they would aim a little lower now theoretically.