on the switch 0- self levelling can't do flips. 1- self levelling but can do flips and 2- full control
What edwardsdigital said, plus...
The flips vs can't flip thing has nothing to do with the mode. Again see Stabilization, but go to Advanced and see the Responsiveness description when you hover the mouse over 'Attitude mode response.' (The description is different from the Basic mode.) It says 'maximum tilt at full stick.'
And again, related to your first Q, there is no 'manual' mode as such. There is Attitude and Rate, plus about half a dozen other variations with different features.
Most basically, Attitude mode includes self leveling and Rate does not. See the wiki for detailed descriptions of the other variations.
The FC is ALWAYS in control of the motors. The human brain CANNOT control the RPMs of all four motors that cause the quad to hover, move forward, move sideways, yaw in a circle, or do whatever. The FC 'interprets' what the pilot -intends- the vehicle to do, by stick input. The two modes plus half a dozen variations -assist- the pilot in controlling the vehicle, to make the vehicle do what the pilot intends.