Apologies if this is old news, but...
The LED is in the little nub toward the back end of the unit. It shines toward the lens. That lens is a mensicus, and is either uncoated, or is slightly silvered, so the back surface of the lens acts as a mirror, sending the LED's light back toward your eyeball. If we think of the lens as a little mirror, you can think of the LED as being at (or near) the focus of that mirror. So the diverging rays of light from the LED are reflected back as a parallel bundle of rays, all seeming to come from infinity. The result is a little blob of light with no parallax. A nifty design, really.
The problem is, it would be difficult to tweak. The lens is molded in, I think, so it couldn't be easily repositioned or replaced. There's not much room in there for a pot, so you might consider a resister in series. That's probably what Orion does with the 3 position switch.
My thought is that you could build one of these from scratch, use a coated lens, and a brighter LED with pot, giving you less light loss, and plenty of control over LED brightness. You could even include one of these blinking LED circuits if you want.
I'm probably just going to use it as is, to rough point the scope so the object is in my finder.
Any way, hope this helps, and thanks for the tip.
Mb (Mike Bagneski)