I'm adjusting the rears to full soft and noticed that without pushing in the adjustment ****, the stem is rotating freely. I can't remember, but I thought once adjusted, the stem is locked into place?

I tried "deciphering" the instructions and noticed my rear Koni does not have this washer-looking thing depicted in box 4:

 

3rd gen rear right?
My 3rd gen rears do the same, I assume this is normal.

 

Yeah it only makes a click when you have the button pushed in, otherwise it rotates freely