Bob,
In its unwavering quest to protect you from yourself, the US govt. mandates that the headlights remain on at all times. This is why the switch you refer to does not operate. In other countries it does.
The two smaller lights you refer to are called pilot lights. If you look in the headlight mechanism for most any Vintage European bike you will find a single small bulb also called a pilot bulb. As I understand it, it was considered proper practice to keep your headlamp off when you were driving in populated areas at night and these bulbs provided some indication to others that you were on the road. I cannot vouch for the accuracy of this information, but it is the genesis of the the two pilot lights on the Bullet.
Regards,
Kevin Mahoney
Classic Motorworks