OK, heres a overly simplified explination of whats happening.
Hard drives write data on the disc platters in "cells" called sectors. Each sector however, must be address for the computer to recall and write data to it. In older machines, there was a limit to how many sectors you could address, or "map out". A bit like how 32bit Operating systems have a limit on how much ram they can address (3-4GB), over 64bit OS that can address Terabytes. In the days of only 50MB HDD's, they never thought ahead of the limits in the way they address the sectors and when larger drives came out like 30 odd GB. They had to improvise new ways to address larger ammounts. New ways to map out the sectors emerged, each surpasing the previous method, each being able to map out more sectors than the previous standard. The first standard to break the 504MB barrier was CHS (Cylinder Head Sector), followed by Extended CHS, then Large, LBA (Logical Block Addressing) etc etc.
What the jumper that your mentioning does, is force the hard drive to use a previous mode of addressing that limits the drive capacity to 32GB, as that is the limit to the sectors that standard can address so it can be compatible with older motherboards that does not support newer addressing methods such as LBA. It does not increase your hardrive capacity in anyway, it can only limit it, perhaps your mate accidenty had it in this mode. leave yours as it is if you are getting the full storage capacity of the specs of the drive.
A Note for the comment about missing 7% of hardrive space, this is because manufacturers still sells storage devices measuring KB as 1000 bytes, MB as 1000KB and GB as 1000MB, ie, a manufacturers labels a 160000000000 byte hard drive as "160GB". This is wrong! a KB is 1024Bytes, 1MB = 1024KB, 1GB = 1024MB, so to get a real 160GB Hard drive it should have 171798691840 bytes. And a 160000000000 byte hard drive is really a 149GB hard drive. It has nothing to do with the file system the drive is formatted in, as belived by a lot of techies.
Hope that helps.