Yes that is the hammer setting on your drill. The next setting is for screwing things in with no clutch release (it will keep rotating while the button is depressed), and it appears you have a series of numbers next which are the clutch settings. These will apply different amounts of screwing pressure before the clutch disengages. Good for when you don't want to over tighten it strip screws.
Please do not use the drill setting for screws, you're gonna strip the head and regret it. Even with years of experience, being too lazy to turn the dial has burned me countless times
I'm assuming you're using a masonry bit so I'm gonna give you another tip:
LET THE BIT/DRILL COOL DOWN. You might burn the drill out and you WILL dull the bit. You don't need to drill through in one shot...drill for 20-30 seconds and wait a few minutes. It's slow but worth it.
Masonry bits are carbide tipped and don't dull, they just break. Heat is not an issue and the bit doesn't even function by cutting. It's a downward 45 angle in order to chip as it rotates. There's no cutting force from the rotation.
You'll be fine. I've found applying pressure for about ten seconds, then clearing the hole, rinse and repeat, works well when using a "hammer drill" like this. Use speed 2.
Also, use a HEPA filter equipped vacuum to capture the dust as it's created, and wear an N95 dust mask while drilling. Silicosis is no joke
Eh, drilling small holes in concrete is fine. If I need to throw a quick tapcon or something in a slab I'll just use my 1/2" chuck cordless hammer drill. You're absolutely right about larger holes though. What a pain. And don't talk to me about hitting rebar lol