I've searched all over the admin of Silverstripe version 3.2.1 and I can not find what makes my Home page (Menu(1)) the default homepage (/). How does Silverstripe decide which top level page to make the default homepage?
The default homepage is whichever pages url you set to '/home'.
Your home page is determined by the URL Segment. By default, the top-level page with a URL Segment named home will be your home page.
You can customize this via YAML config, by putting something like this in your mysite/_config/config.yml (or any config-file for that matter):
RootURLController:
default_homepage_link: 'main'
The above config will make the page with URL segment main the home page.