Th real Atari 2600 console have 2 switch buttons about this. What they used for is depend on the game. Yes, They mostly used for Difficulty, but not allways.
[EDIT]
BTW, I recommed you to run Space Invarders to test these swtich. When playing in easy mode, your spaceship is small. In Hard mode, your spaceship is wirder.
So it should been correct, like you say.