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Both settings recycle cabin air in the same way. Normal setting is there for you to activate if you see or smell something you don't want in the cabin; e.g. dust cloud, wood smoke, tar smell, truck exhaust, etc. The Automatic setting is supposed to turn the recycle on automatically as noted above. Third setting is Off entirely.
 

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Thanks for the clarification. I guess it makes sense to just leave it on automatic.
Just remember it won't switch due to skunks smells, burning leaves, etc. Only exhaust fumes.

If you are curious, the sensor is located on passenger side cabin air filter housing. Same place as the hood switch for the alarm.
 
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