I fly the 1900D everyday, and use the above mentioned switch everyday. On the 1900D's I fly, there are two encoding altimeters, one getting the information from the captain's side, the other from the copilot's.
When selecting 1, the altitude information from that encoding altimeter is now being used by the transponder, TCAS and GPS, and possibly a few more systems that I can't quite think of right now. If the encoding altimeter were to fail, switching to #2 would make all these systems function again.
The practice that we use where I work is that if the captain's the one flying, we select his #1. If the copilot is flying, we select #2.
Hope this helps