I've always used the "engine" setting on my 1955 model. I think the "ground" setting was for a line of implements that were designed to use it. Its kind of neat to have a 2 speed PTO but I can't imagine what you'd use it for nowadays. What year is yours?
We debated the year of my TO35 in another thread and the best we could figure is that it was probably a '58, but could be a '55. I need to make a note of the serial number this weekend (I was going on memory when we were trying to figure out the year). I'm pretty sure it starts with 158.