As you can tell from my avatar I'm a Rally owner (past tense). I sold it to a friend, who sold it to his brother (also my friend) and I'm considering buying it back. I bought it new and we were kinda' joined at the hip for 35 years. It needed a neck reset, and now is playing well again.
The extra knob on the lower bout is a volume pot for the Sonic Boom treble boost. The 3-way switch functions are: middle position-standby, upper position-Sonic Boom (treble boost), lower position-normal operation. When in the upper treble boost position, all other controls are inop except the Sonic Boom volume. I also don't recall that the mud switch had any effect when the Sonic Boom was activated. In my opinion the Sonic Boom was not a very useful feature. It was too trebley, not at all the rich tone a Gretsch is known for. It had that electronic overtone (like a bad microphone) that spoiled the effect. I never used mine and eventually it just failed...probably from lack of use. Battery operated devices don't fair well with me.
Also the 3-way switch began to act up, and I had to perform surgery to keep the contacts functioning. It was always repairable, unlike the Sonic Boom. Once that crashed, it was gone forever.
The Rally is a nicely built guitar for a low end product. The neck was excellent, and the Hilotrons had their own special sparkle, inspite of the low output. That coupled with a unique color and finish makes it a desireable instrument. (I should listen to my own evaluation.)
Hopefully you'll get comfortable with the controls and enjoy the good features of it. If the Sonic Boom fails, good! That eliminates dealing with it, and the guitar is excellent without it .