That's how a constant speed propeller works in the Arrow or in any other aircraft with a constant speed prop, within limits. The propeller governor (on the prop itself) controls the pitch of the propeller, the propeller control (that blue lever on your panel) adjusts the governor, and the throttle controls the amount of power applied to the propeller. Once there is enough power applied to reach the governing stage, changing the power setting makes the governor change the propeller pitch in order to maintain a constant RPM, although it is possible (usually in a considerable dive) to overspeed the propeller (I've done that in a real Stearman) and below a certain power setting (depending on airspeed, etc.) there's not enough power to keep the RPM up.
So at 1700 RPM on the ground, for example (say during runup), the governor has little effect, but adding enough power will get into the governable range, especially at higher airspeeds, where the prop control effectively sets your RPM by changing pitch.
So in effect the low pitch/high RPM setting is like a low gear in a car (well, sorta) and the high pitch/low RPM setting is like top gear in a car (again, sorta).
Hope this helps...