>What purpose does the gain stage serve?
It further amplifies the source signal before sending it to the power amp, giving the capability of higher volume. The amplification factor is variably offset by the attenuating action of the volume control to yield the overall desired volume level.
>What are the advantages/disadvantages of either [the low gain setting or the high gain setting]?
In theory, you should set the preamp to employ as little gain and attenuation as you can get away with to achieve your desired overall volume levels, in order to get the most neutral and transparent sound. In other words, if your source already offers enough or nearly enough gain of its own to provide your highest desired volume levels, then there is no sense in having the preamp set to greatly further amplify the source's signal, only to then need to greatly attenuate that extra amplification via the volume control.
In practice, many volume controls are engineered to work best in the roughly 50%-75% area of their ranges. I don't know about the Pass volume control specifically, but you will probably be doing alright if you set the gain control to the position which allows you to keep the volume control around this region while playing most of your sources and software at your personally preferred medium-to-moderately-high listening levels. This will give you enough play on both the plus and minus sides of this range to enable you to dial-in the extra volume or attenuation you might need for particularly quiet or loud material, or to accomodate extra loud or quiet desired overall listening volumes, while best maintaining a generally optimal S/N ratio. (If you have various sources with fairly divergent output strengths, you might find that one gain setting is better for certain of your sources while the other setting is better for the rest.)
It further amplifies the source signal before sending it to the power amp, giving the capability of higher volume. The amplification factor is variably offset by the attenuating action of the volume control to yield the overall desired volume level.
>What are the advantages/disadvantages of either [the low gain setting or the high gain setting]?
In theory, you should set the preamp to employ as little gain and attenuation as you can get away with to achieve your desired overall volume levels, in order to get the most neutral and transparent sound. In other words, if your source already offers enough or nearly enough gain of its own to provide your highest desired volume levels, then there is no sense in having the preamp set to greatly further amplify the source's signal, only to then need to greatly attenuate that extra amplification via the volume control.
In practice, many volume controls are engineered to work best in the roughly 50%-75% area of their ranges. I don't know about the Pass volume control specifically, but you will probably be doing alright if you set the gain control to the position which allows you to keep the volume control around this region while playing most of your sources and software at your personally preferred medium-to-moderately-high listening levels. This will give you enough play on both the plus and minus sides of this range to enable you to dial-in the extra volume or attenuation you might need for particularly quiet or loud material, or to accomodate extra loud or quiet desired overall listening volumes, while best maintaining a generally optimal S/N ratio. (If you have various sources with fairly divergent output strengths, you might find that one gain setting is better for certain of your sources while the other setting is better for the rest.)