The flow control knob works very similar to a hose bib or gate valve as its main function is to either fully allow or restrict the amount of water passing through the valve.
The main difference is that the flow control limits the diaphragm's stroke, allowing less water to pass. This, in turn, creates additional pressure loss, allowing you to “fine-tune” your sprinklers' performance. A fully open valve (4-5 full turns counterclockwise) might allow 75+ PSI to pass, which is too much for certain sprinklers like pop up sprays. The flow control would allow you to restrict the flow and pressure to a more manageable level. As you can see in this valve cutaway, the flow control literally rests upon the top of the diaphragm to control the stroke of the diaphragm.