Greg, This is the 'Good' A/C regulation system. The switch regulates the compressor clutch cycling time. Red is always on. The system allows for freeze-up by never having the fan off if the switch is turned past 12 oclock.
This operation was abandoned by Volvo due to simplicity, and some owners not liking the engine 'lag/lunge when the compressor cycles on/off. The A/C compressor lasts much longer and presents a lot less load to the engine with the cycling, and better mileage when the A/C is on.
The first 240's had these switches and in the 'early 80's went to 'always on', then for a few years, back to the switch in the late 80's.
Modern climate control requires 'always on' to regulate the temp accurately, so thh A/C system is taxed more secerely with these type of systems.
I personally like the cycling switch. It gives more complete temp manual control, and the compressor is original in my '89 now with 240k mi.
--
'89 245 Sportwagon, VX cam,K&N, Bil's, IPD susp & exhaust