It depends what music you play, and where you come from. If you want to play Dwight Diller type West Virginia music, you hit the strings so that the thumb just catches the head. However, Round Peak (between Mt Airy NC and Galax VA)players are after a mellower clear sound, without the rap on the head you get from Dwight's method, so you move your hand a few frets closer to the peghead. If you want to hear what it sounds like, listen to Tommy Jarrel, Fred Cockerham, or Riley Baugus among others. These guys are often playing fretless banjos. Brad Leftwich has a book of tabs showing how it's done - a very characteristic sound, and not too easy, but well worth learning.

Cheers
Ray