It's right, Skeat - think of the tension disks like 2 paper plates. When the foot is up, it opens the distance between the discs, allowing the thread to lay between them. Lowering the pressure foot closes the distance between them, thus putting tension on the thread. If the machine is threaded with the foot down, the thread essentially just lays on top of the closed discs - and the discs don't put any tension on the thread.
Clear as mud? LOL