Actually it is an armorer’s tool for quick, major, sight adjustments or sight removal, replacement on new guns or guns under repair. The minor adjustment was to be done by a loaded round’s bullet tip, one click at a time, by the GI to whom the gun was issued during sight in, unless a major change was needed. The rear sight adjusted for windage, large end of tool, the front sight adjusted for elevation only, the small diameter end of the tool.
The first M-16s, once give a battle sight setting, were good out to 300 meters, the max effective range of the then 55gr bullet at 3,150 fps. The flip rear sight was for quick change from close and long range. This was an assault rifle, not a battle rifle at that time.