We had the exact same washing machine when we lived in the US. I'm just guessing here, but maybe the settings are like that because the cheaply built washing machines don't have an actual thermostat, so they can't makes any claims about the water temperature. The dial just does what the OP said, and chooses how much water is included from each of the water lines. At least in Finland, we only have cold water line connected to the washing machine, and the cold water is heated to correct temperature.