When you have the plug in partially like that you are forcing the one chennel that does work to make contact with both sections at the end of the jack so that both speakers ore pushing out audio from the one chennel. In a sence it a make shift Mono connection. The volume drops because the signal is split in half between the 2 speekers.
No. Stereo plugs have a center ring for one of the channels and the tip is the other channel, with the back end of the jack being a common ground. If it were somehow possible for the tip (or center ring) to touch both jack connections, the jack outputs would be in parallel. This would lower the impedance seen by the preamp (typically 47k ohms) resulting in an impedance mismatch. A lower impedance would overdrive the preamp, but for stereo applications it would work at the same or higher volumes, albeit with some possible distortion.
Since the OP is using speakers, his setup has a preamp and a power amp. If he has powered "PC" speakers, the amplifier sections are built in to his subwoofer. The volume control attenuates the signal in the preamplifier section, but the power amplifier produces the volume level required to drive speakers.
Being mechanical parts, jacks fail, sometimes from abuse or over use. Typically, the contacts become oxidized or just plain dirty - a squirt of contact cleaner usually helps in this case though it may not last long. If it's an open jack, i.e. you can see the contacts, a little cleaning with emery paper or very light sandpaper will clean them up. More common these days, jacks are enclosed in a plastic "box" making mechanical cleaning difficult (a needle file works.) Finally, if the jack is the type which switches of speakers to power a headphone (unlikely in the OP's case), there is an additional "spring" contact which reconnects the speaker circuit when the plug is removed. These tend to weaken with use but sometimes can be bent back to establish a proper connection.
Glad to hear you got your speakers working, munidgtm!