My understanding of electronics is limited, so if you'll excuse the half-witted explanation ...
On a mono jack, there are two contact points: one for the tip of the plug, and one for the sleeve. On a stereo jack, there are three, with a contact for the isolated ring between the tip and the sleeve.
The two signals in a stereo jack can work with three wires, since earth can be shared. For mono operation, the toggle switch would have to sum the two signals onto the contact for the tip (IIRC, this is done with a simple resistor) and also disconnect the contact for the ring. The ring contact will be touching the sleeve of the mono plug, but since it's disconnected it's practically the same as earth, so that shouldn't be a problem.