The tip is the reservoir for the ink.  Surface tension holds the ink in the tip and on an object (the needle cluster).  You notice that when you prepare to work the ink does not dribble out the end.  As the needles move very fast up and down (in and out) the surface tension is broken and the ink flows.

Thinner inks flow more freely and more easily.  The farther the needle travels out and away from the tip the longer the distance the ink must flow down the needle and onto the point of the needle.  Thick slowly-flowing inks cannot travel as far as thinner inks so hanging the needle way out will prevent the ink flowing such a long distance.  Different inks have different viscosities and flow at different rates.

The distance the needle travels out of the tip is adjusted by moving the tube up or down. 

Ink flow is regulated by moving the tube up or down.

Experimenting a bit you will notice that even with very thin inks if the needle hangs way out you may begin a line but quickly run out of ink.  As you move the tube downward a little each time you will see that your line becomes longer and longer for each different setting.   A point will be reached at which a small drop will form on the surface and move along with the needle as you make your line.  Many artists use this droplet as a marker so that the ink line will be uniform in ink density.  As the needle droplet begins to diminish the line is stopped for a refill.  Of course you must visualize where your stencil line is if tolerances are critical while working in the droplet.  This is the surest way to make certain your line work will have the same density of ink. Shadings with larger clusters of needles is often done in the same manner but usually with greater amounts of ink on the surface.