<<Doesn't quite make complete sense yet>>
Well it's not Rocket Science Kirk.. and surely you switched the thing on the instant you got it?
As has been explained, the squelch (or "muting" as it's sometimes known) reduces the hissing noise you hear when the squelch is wide open. As you close it down the noise will suddenly disappear but signals will "break" the squelch and you'll hear them. To hear very weak signals you sometimes need to open the squelch, ie so the receiver is making a hissing noise. On the other hand, if you turn the knob all the way in the opposite direction so the squelch is closed you may not hear anything except extremely strong signals.