From memory, winding the shock in and out of the thread alters the angles of the frame. I guess if you've got problems with tyre clearance then set it so that the tyre won't rub or change the tyre.
As for the shock. I seem to remember that the external adjuster alters the compression damping only. It's a strange way of doing things as most shocks with only one external adjuster are rebound adjustable. I think this has got something to do with it being a pull-shock on the Lobo.
I also found that the rebound on my Lobo was too fast but the shock was old and needed a service. I fitted a NOS shock to mine that fixed the problem. If you want to adjust the rebound of your existing shock I suggest you change the oil for something heavier. You can adjust the internal shim stack that restricts the oil flow on the rebound circuit but unless you know what you're doing or can find suitable shims and the information regarding which shims to use and in what order I'd stick to the oil change
From memory these shocks don't have any presurised nitrogen inside (again because it's a pull shock). BUT, if you do decide to take the shock apart be careful as things can fly out!
http://www.retrobike.co.uk/forum/viewto ... light=lobo