Join Date: Jul 2006
Location: Berkeley/Santa Cruz
Bikes: HPL steel track, Marin Muirwoods, 1985 Aluminum Trek 2000(?)
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Your shifter has a friction mode, in which the shift lever moves continuously (allowing you to shift smoothly even if the derailleur adjustment is not perfect) and an indexing mode, where the shift lever moves between detentes which are supposed to represent the correct amount of cable pull for each gear. The small lever you refer to switches between them.
The correct way to use the friction mode is to move the shift lever until the shift occurs - after you get used to it, you will just know how much you need to move the lever (until adjustment changes, ofc.).