It doesn't matter what position the switches are in when you boot the game, what matters is what's saved to the cfg.
The way it works is very simple but I'll try to explain it a bit better with a basic example.
Firstly, this only applies to Cheats/GSM/PADEMU settings.
Setting up global defaults:
(You probably only need to do this once but they can be changed at any time).
If you don't use any of these features you don't have to do anything because they are disabled globally by default.
Go to Game Menu (the game you're on when you do this is irrelevant).
Go to Cheat Settings, set Settings Mode to Global, configure your settings and hit OK.
Go to Configure GSM, set Settings Mode to Global, configure your settings and hit OK.
Go to Configure PADEMU, set Settings Mode to Global, configure your settings and hit OK.
Hit Save Changes and your global defaults will be saved to conf_game.cfg
Let's say we boot the game SLES_123.45 and this game has no cfg.
SLES_123.45.cfg is created and since the config keys do not exist within it our global defaults will be loaded.
Let's say our global GSM settings didn't work for that game.
We go back to Game Menu, go to Configure GSM, set Settings Mode to Per-Game, configure our settings and hit OK.
Hit Save Changes and those GSM settings plus the $GSMSource config key will be saved to SLES_123.45.cfg
Now when we boot the game SLES_123.45.cfg is checked for config keys.
$GSMSource exists so our Per-Game GSM settings are loaded.
The other config keys do not exist so our global default settings for Cheats and PADEMU are loaded from conf_game.cfg
Something does need to be changed so there will be a new test build put up later.