If the one you're using is similar to the one below, it won't do a great job catching dirt and smaller debris. Best to keep the pump on filter mode to capture the small stuff.
Keep it on filter. It sounds like you have a leaf catcher attached, not a vacuum. Everything it picks up will end up in the bag. No need to change the filter setting. Those are great when you have a lot of leaves and big items on the bottom. To catch finer stuff afterward, you really need to hook up the actual vacuum (if you have one). That uses the pool's corrugated hose attached to a vacuum head and the pool's suction to 'vacuum' up all the little debris. That will end up back in your filter.
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