The switch does the same thing the breaker points do.
The breaker points open to cause a spark. At all other times the breaker points are closed.
This causes a magnetic field to build up - a flowing current causes a magnetic field.
Because the coil is shorted, the current is high but the voltage is low. So, if there's any voltage on the secondary it will be low as well.
Now, when you open the breaker points, the magnetic field tries to keep the current flowing. Since the breaker is open, the voltage needed to keep the current flowing would be high.
The transformer multiplies this high voltage (the voltage across the breaker can reach several hundred volts) to reach the tens of thousands of volts needed for the sparkplug.
The same thing happens when you close the stop switch. The current through the primary is high, the voltage is low, and so the secondary voltage is too low to fire a spark.
It is in fact the sudden opening of the breaker that causes the spark.
The more current flow through the primary, the stronger the magnetic field it can build up - it stores more energy in the magnetic field.
With more energy stored, you get more energy delivered to the primary when the points open - so, you also get more energy transferred to the secondary. More energy in the secondary means more voltage and current (for a longer time) through the sparkplug. That gives you a hotter, longer lasting spark that does a better job of igniting the fuel.
This is also why electronic ignition systems work better. They switch faster, so there's a faster change in the primary current. That leads to a faster change in current, which leads to a higher primary voltage and better use of the energy stored in the magnetic field.
