LilyPad Simple On/Off switch

As shown in the schematic, that switch is actually wired to switch between battery power and the FTDI_VCC. So if you have it hooked upto to a FTDI cable, the main IC can draw power from that. Technically it's only an On/Off switch when not attached to a programmer, which for many projects would be the majority of the time (at least after they are working properly).