Steve,
Your system was designed to be in the Pool mode most of the time.. This means that you want almost all your water to go back to the pool and not the Spa.. You will need a little water going to the spa, to keep the spa water fresh. This is what gives you the spa overflow.. The reason that you want most of the water going to the Pool Returns is that you want to create some circulation in the pool.. This will also make your skimmer work better.
In your initial pic, your Intake valve was set to shut off the Spa drain and suck water from your skimmer.. This is where you want the Intake set, unless you are using the Spa.
In your Initial pic, your Return valve as set to shut off the Pool Return...

You only want the Return valve in that position when you want to use the Spa. In normal operation you want to set the Return valve to send 80 to 90% of the water to the pool return line, and only 10 to 20% of the water going to Spa return (the pipe with the check valve..)
In the Spa mode, the handles of the Intake and Return valves should point away from each other..
In the Pool mode, the handles of the Intake and Return valves should point right at each other.. This will cause no spillover.. To have a spillover, adjust the Return valve to allow a little water to go to the Spa pipe (the one with the check valve..)
If your spillover does not have much of a flow, it could be that your filter is very dirty.. (What is the filter pressure???) It could also be that your pump is running too slowly.. (How fast is your pump running???)
Your spa draining a little when in the pool mode is a good indication that your Intake valve is leaking internally.. This can be fixed by replacing the diverter..
Thanks,
Jim R.
Thanks,
Jim R.