Looks like the cone (gray thing to the left of the black arrow), locknut (black arrow), axle bolt (red arrow) --
http://sheldonbrown.com/cone-adjustment.html
The locknut should not be loosened / tightened willy-nilly. It's responsible for keeping the cone at a particular tightness so that the the bearings in the hub are appropriately restrained. If the cone is too loose, the hub wobbles left and right on the axle. If the cone is too tight, the wheel doesn't turn or turns "grime-ly" as your bearings are being ground down. The right tightness with smooth wheel rotation and no left/right play of the hub can be on the order of single degrees adjustments to the cone. The locknut keeps the cone adjusted that way.
It sounds like you should at least get / perform a cone adjustment. The axle bolt rotating the locknut is a separate (but possibly related) issue that I can't comment on. I can't imagine why the axle bolt would be so far to the left to be pressed up against and rotating the locknut. Hope this helps with at least putting names to metal parts.
/notscrod