THat hole with threads is where there would normally be a screw to prevent you from going from reserve to prime. I don't know why they do that, but whatever
Anyway, you should be good without it in.
The single most important thing to remember when working on this stuff is... only do one thing at a time! Otherwise you'll never know what you did to fix something. WIth that out of the way, here's the primer on fuel flow.
The fuel tap works like this. Down position (all the way counterclockwise, 6:00) is normal "on" position. reserve position, a quarter turn clockwise from "on", or 9:00, should be avoided like the plague... seriously. it can suck the gunk from the bottom of the tank into the carbs with an ensuing disaster. The straight up position, prime, is one quarter turn clockwise from reserve, or 12:00. Only use this when the float bowls are dry.
The "on" fuel position only lets fuel run when the engine is pulling vacuum, that is running or cranking on the starter. This prevents fuel from accidentally just draining out all the time. Prime position just lets fuel run out all the time. If you've got a stuck float or float needle, it will just drain all your gas out through the carb and into the engine. Don't ever leave the bike in prime. Only use it for filling the float bowls when you need it and then switch back to "on". (caveat, there are times when prime is useful, like when you've got the tank propped off to the side so you can fsck with stuff with the bike running. Be sure to plug the vacuum line from #1 in this case).
So first thing to check is the operation of the fuel tap. Pull the tank and set it somewhere stable, fuel safe. With the tank sitting in it's normal configuration, and the fuel tap in the on position, there should be NO FUEL coming out anywhere. If that is the case, then good, otherwise, you need a new fuel tap. Put a tube on the vacuum inlet (small straight tube coming out of fuel tap). Suck on the tube a little bit
(warning warning warning!! you may get fuel in your mouth!!! This is very bad advice! you have been warned!). Fuel should flow out the FUEL outlet and nowhere else. If you get fuel in your mouth, you need a new fuel tap, or at least a new membrane inside it. Go wash your mouth out and don't tell anyone you just gulped a bunch of gasoline. Gasoline is poisonous!! I am not responsible!! Don't mess around with this part!
If you want to, you can test the prime position. Fuel should just flow out the outlet.
If you've confirmed your fuel tap is working properly, then you can move down to the floats and float needles.
The floats move up and down as the fuel level in the bowls moves up and down. This pushes on the float needles and allows fuel to flow, or not, into the float bowl. The o-ring around the two tubular parts of the float assembly, where it plugs into the bottom of the carb body, prevent fuel from sneaking around the float needle. If they don't fit snugly, with no cracks, replace them. Probably smart to replace them anyway. The float needle must move freely in its plastic tube. It's a two part action. The float needle assembly slides in the plastic tube, should move freely. Then the needle itself moves in the assembly with a spring loaded action. That last little bit of movement is what closes the valve. If that doesn't move right, or there is any gunk in there, you need to fix it. You may have to actually pry the floats out of the frame and then pull the whole needle assembly out to get some of the grit out. Also make sure there is no grit in the fuel line or the passageways in the carbs themselves. Any grit there will eventually clog the float needle open. Finally, especially if you have to pull the floats out of their frames, you need to check the float level. With the float upside down and resting naturally under it's own weight, the top of the float should be 15mm above the flange where it sits in the carb. Google on adjusting float height for more details.
If you have wet spark plugs but are getting spark, you most certainly have a problem that will be solved by the above procedure. You are getting too much fuel, somewhere it is just running into the engine. If the above doesn't fix it, then you've got bigger problems or modifications that we don't know about.
good luck and keep plugging away.
A