Hello Tricia, the one near the light is for the appliance as a whole and the slider is just for the air flow from the freezer to the fridge. No one can really tell you what your fridge should be set at. That is really down to you finding a setting that corresponds to conditions inside the appliance that meet your requirements.
As a useful guide, we always recommend half way on the scale as a starting point. So, in your case, 3-4 should suffice. Try this and edge it up or down, depending on the temperatures that your appliance returns you.
The door not closing correctly thing was certainly true in some cases where the door seal didnt properly meet with the cabinet, but in the majority of cases, frost on the drawer fronts is caused by the air return duct from the fridge to the freezer being blocked with ice.
This results in the fridge temperature being too warm and also frost on the drawer fronts.
We've looked at scores of these where the door seal has been perfect.
If you turn off the appliance for a good while, with the freezer door open, this should sort out the issue, at least temporarily.
If the problem persists, then you'll need an engineer out really.