The View Selector enables you to select between the Reference View and the Edit View.
The Reference View is a static view of the changes in the files as originally read from disk. In this view the files are considered read-only. You may scroll around and view the differences and you may copy things to the clipboard -- but you cannot modify the files.
This mode can be useful in various situations, such as when you want to see the changes between two historical versions of a file.
The Edit View is an interactive editor and live difference viewer. It enables you to make changes to the center panel in a File Merge Window and the right panel in a File Diff Window. As you edit, your changes are highlighted, the files are re-compared in real-time, and their changes are displayed.
The View Selector is only present when editing is permitted on the files. When not present, the window only shows the Reference View and treats all files in the window as read-only.