Well, first of all, just to adjust the position of the stem, on that type of headset -- threaded-- merely unscrewing the stem bolt as is shown in the picture will not loosen the stem. Once the bolt is loosened (but not fully removed), give the bolt a whack with a mallet (rubber to prevent damaging anything) to free the wedge that holds the stem tight inside the headtube (see gray colored wedge at bottom of quill in this photo).

Once the wedge pops free, you should be able to adjust stem position. Once stem is where you want it, tighten bolt (act of tighten bolt draws wedge upward, creating tight fit inside head tube, which holds the stem in place). If you can't get the bolt to engage the wedge (i.e. it wont tighten as you indicate), you may have unscrewed too much so bolt is not longer threaded into the wedge. Pull quill out and make sure the bolt is engaging the wedge, then put stem back in and tighten it down.

Second, If what you are saying is that whole headset isn't moving freely, then you need to pull stem all the way out, loosen and remove headset lockring, and adjust the headset to allow bearings to move more freely. Could be, you need to take whole headset apart to clean a regrease the bearings is the top and bottom cups.