The REF3 is a truly balanced preamp with differential circuitry. When set to SE instead of BAL, the additional signal path required for balanced sources is shorted to ground, which prevents it from picking up unwanted noise. You will still get sound when you have the switch in the wrong position, but for optimal results and the lowest noise, the switch should be used as intended.
With a balanced source, running the switch in the SE position will defeat the balanced circuit and its noise cancelling benefits. It will also reduce the output level by 6 db. When using an unbalanced source and having the switch in the BAL position, the output level will be the same as it would be in the SE position, but more noise can be picked up by the additional unused circuitry.
There is nothing that will cause damage when having the switch set wrong either way.
With a balanced source, running the switch in the SE position will defeat the balanced circuit and its noise cancelling benefits. It will also reduce the output level by 6 db. When using an unbalanced source and having the switch in the BAL position, the output level will be the same as it would be in the SE position, but more noise can be picked up by the additional unused circuitry.
There is nothing that will cause damage when having the switch set wrong either way.