The half nut engagement lever controls half of a nut (picture a nut cut in half leaving 2 matching threaded pieces) that is spread open when disengaged when its engaged it closes to 2 halfs around the lead screw to advance the carriage. It can be engaged running or not doesnt really matter. If you engage it not running you may have to rotate the chuck some to get the threads on the leadscrew to mate up with the threads on the half nuts. It is used for threading and also used to feed the carriage automatically so you dont have to crank the handles all the time. That can help with the surface finish and making the cuts easier on the machine by not having a quick advance of the tool into the work, it will stay constant. The threading dial runs off of the leadscrew and turns "x" number of rounds per revolution of the leadscrew. To use it for threading you use the chart that came with your lathe to see what number or numbers you can use with the thread youre wanting to cut. If your wanting to cut a 16 thread per inch it might say you can use 1,3,5, meaning when the dial gets to any of those numbers you can engage the halfnuts. This keeps the thread starting at the same point in the rotation each time. If you go to www.mini-lathe.com or www.littlemachineshop.com they have some different information you could use to figure out some of the terms and different functions. Hope this helps.
Rick