Look at section 19 of the regs. You set the ignition timing with the engine at TDC (you can use the fixture in the left hand picture to help with this) and using the gauge (as shown in the right hand picture), you need to set the timing to be in the part with a tick showing. Obviously, the closer to the line, the more advanced your timing is....and once beyond the line, you are ready for the wrath of Kelvin hitting you with his naughty stick.
I used a TDI (a decent one!) down the plug hole to set my engine at TDC and verified it with a timing disc. Have a look at the technical guides that BrianP has done - the cam timing one shows the use of a timing disc.
Also, do a search, this was discussed to death a couple of years ago.
Mark
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