That little dial is a preset for the needle. If you turn it clockwise as seen from the rear, it pulls the needle back. It causes the brush to act like a single action, because the needle is already retracted a bit when you press the trigger for air. It should be all the way counter clockwise when you install the needle. The needle should be fully seated in the nozzle when you install it.
You mentioned adjusting the nozzle. The nozzle is not an adjustment. I t should be tightened all the way.
If you don't have a manual, you can download a VL manual here.
I don't have a Paasche VL on my website, but there is a lot of general information there that might be of help in understanding how it works.
Don