Hand position 1 is meant for warm up and recovery style classes. It is meant to be a relaxing position.

Position 2, should be the "normal" position to hold your handebars. Normally i tell people to close their eyes and go for their handle bars. that's their natural position

Position 3 is to be used in standing position only.

The hand positions were meant for the "spinner" bike. I am not a total stickler for the "exact" positions, except for hand position 3. some people like to use it seated but it is not ideal for the back, and tends to be used when they are feeling "lazy".