One of the cool things about ArduPilot 2.0 is that it supports three in-flight modes: manual, autonomous (waypoint) and autonomous (return-to-launch/RTL). These are selected with your autopilot-enable toggle switch on your transmitter. If you have a three-position switch the middle position defaults to waypoint mode. The up position is RTL mode.
You can also use a proportional dial for this channel; half-way turned is the middle position. Or, if you have a mixing Tx, you can mix two toggles switches to create an in-between state on the enable channel.
When the autopilot is in waypoint mode, the yellow Mode LED will be on. It is off in manual and RTL modes.
If you want to modify these defaults, you can change them in the software. I've posted on how to do that here