Using that switch, it disconnects the 12v output of the converter, so it effectively doesn't know what your current voltage is in order to determine what output to put out, because its now an open circuit. Now there might be some parasitic loss while its waiting to see a battery come online, but its probably not much at all. Or at least it hasn't been noticeable.
So all we do is shut down the gen, reconnect the shore power to the inverter outlet and switch it over. It powers (attempts to power) everything in the RV that the generator would (Fridge, all outlets, water heater, microwave, etc.). I usually have the water heater on gas only, all the time, and also I switch over the fridge to gas while on inverter.
I've ran this setup so for about 8-10 hours so far on the stock 12v batteries using the LED lighting/TV/CPAP all night and the battery charge only dropped 1/3. Which was all I was trying to accomplish with this setup. I can always run the gen an hour or two to charge the batteries in the morning. I've felt guilty running the generator lately while driving down the road for our 4 year old to just watch TV/DVD. Rather not burn the fuel/put hours on the gen just for 200 watts of power...I do hope to get dual 6 volt batteries in the future, but for now, the stock batteries are doing just fine.