The switch controls the dash lite. In one position it is off when driving. In the other position if the system is working right after the engine is warm it should flash slowly. I leave mine in the flashing mode so I know the instant a problem starts. If it stays a solid red your system is not working right. Be sure to give it a bit of gas to be sure the idle micro switch if off.
The mixture solenoid in the carb sort of makes it run leaner, but when the O2 sensor says it needs a richer mixture it richens the mixture also. When the system is not working right (steady red lite) the carb goes into the "limp home" mode and runs full rich mixture. Thats why so many Zuks smoke with low miles. The rich mixture is washing the oil off the cylinders and wearing out the rings.
Most of the time if your O2 sensor is putting out between .2 and .8 volts when running and warm and the light still will not blink it could mean one of the micro switches on the carb is not working. Take a ohm meter and find the light green wire hanging under the dash by the passenger foot well. Hook the wire to the ohm meter and the other ohm meter wire to a ground. Warm up the engine. Shut off the motor. The meter should peg out (dead short) then give the gas petal a little push. The ohm meter should show open circuit. Then push the pedal to the floor. It should show a dead short again. If it does this your micro switches on the carb are working fine. Next check the computer ground wires. One is on the firewall on the same screw as the small battery ground is. The other is on the thermostat housing. They are both black and should be a good clean connection.
Another way to see if everything is working right is to let the engine warm up good. Turn on the heater fan or headlites. The fast idle solenoid should kick in and raise the idle up. I found that onless the system is working right this will not work. Here is a couple pics of where the switch is.
