A regular LCD requires a lot of wires (parallel interface) to be connected with a Microcontroller.The Serial LCD  backpack built on PCF8574 IC uses the I2C bus to convert  the parallel interface to a serial one.This needs only 2 wires SDA & SCL , apart from the power connections.
The I2C backpack can be soldered on to the LCD .It can be used for 16 x 2 , 16 x 4  &  20 x 4 LCDs that have HD44780 IC .
The blue preset is to adjust the contrast of the LCD. The black jumper on the left is to enable the Backlight of LCD. The I2C device has a HEX address by which a microcontroller can communicate with it.This is set by the 3 bits A0,A1 ,A2 .If no jumper is present , it is HIGH &  a jumper means LOW. By default all the 3 jumpers are open . ie., A0,A1 A2 all are 1s.
By setting this address lines you can connect upto 8 devices to the same I2C bus.
Eight programmable slave addresses possible using these three address pins.
The I2C bus has 2 bidirectional active wires SDA & SCL .They are joined to positive supply through a pull up resistor of 4k7.When the bus is  idle both lines are pulled high.
The expanders can be configured to have a unique 7 bit address. The first 4 bits are factory configured to
0100 for PCF8574/PCF8574T
0111 for PCF8574A
The lower 3 bits are settings on device pins A2,A1,A0.
The eighth bit specifies whether the following data is a Read  or Write operation.
 
Refer table in image added which describes how the address is arrived.By default the factory setting is A2,A1,A0 all open leading to all 111.
First 4 bits are factory set to 0100 for PCF8574T/PCF8574 .If the port expander IC is PCF8574A , the first 4 bits will be 0111.
For calculating the address a 0 is added at the MSB (R/W bit not taken into account for calculation)
Hence the default I2C address of the module is HEX 0x27 .