there's actually two screws at 2 and yes, this is the one you want to tighten to keep the fork from wobbling.
the bottom one to tighten, the top one to keep the bottom one from untightening.

the screw at 1 is to make the bars rotate with the fork.

there's also the right amount of tightening, enough to keep the fork from wobbling, but not too much so the fork doesn't steer at all.