Dampening adjustable coilovers and coilovers all together come in two parts: the sleeve which is basically the spring and a couple of cups and then the damper itself. Essentially these are two separate parts that work together and enable you to have lowness without compressing the damper as much as a shock and spring package, basically you minimise the rebound. The springs on coilovers come preloaded meaning that you don't have to rely on the weight of the car to compress the shock, it's already done for you but this does mean having shorter dampers with less movement in them and a stiffer ride.
To alter the height of the car on a coilover, simply tighten or loosen the bottom spring cup to either tighten or loosen the spring. A tighter spring/lower car means a harder ride and a looser spring/higher car means a softer ride. Keep in mind though that the damper is already stiff so for example, if you were to run coilovers as OEM height, it would still be very solid.
The dampening adjustment gives you some room to make the ride softer or harder (depending on your lowness). This is done with a rod that slides into the top of the damper and adjusts the internals of the damper, allowing it to compress more or less. Generally someone with a lower car will allow the damper to compress more or someone with a higher car will allow the damper to compress less to get the best from daily driving. This is of course down to the individual's driving style and if flying round corners comfortably at 70mph is for you, then you'll ideally have the whole set up set to low and stiff to minimise body roll and lower the car's centre of gravity. It's generally recommended to have the front a little stiffer than the rear, if the rear is too stiff it can cause the car to step out a little at the back...as I found out on a previous car rather scarily.
Well that's my understanding of it