The lines are spaced 1/16" apart.
Two 1/16" lines = 1/8"
Three 1/16" lines = 3/16"
Four 1/16" lines = 1/4"
Five = 5/16"
Six = 3/8"
Seven = 7/16"
Eight = 1/2"
Nine = 9/16"
Ten = 5/8"
So, on this bowsquare, the height of the arm is 5/8".
What you'll want to do is have two nock sets. One below your arrow, and one above.
Here's how to position them on the string:
First, place the square on the string. Make sure that it is fully seated and that both of the metal tabs are on the serving. Adjust the bowsquare so that the arm is just sitting on top of the shelf. The bottom mark on the bowsquare will now be even with the shelf. That is the 0 mark. You'll want to position your nock sets up from that bottom line.
Start with the top nock. You'll want the bottom of your upper nock to be around the 7/16" mark (seven lines up from the bottom). Once you get it in the right position, lightly crimp it in place. You want to have it tight enough that you can still twist it on the string, but not so loose that it will slide on the string. When it comes time to tune, you will be able to adjust the nock height by twisting it up and down the string as necessary.
After you get the upper nock mounted securely, clip one of your arrows to the string, and butt it up to the upper nock. Place your lower nock set below the arrow and leave a little gap (about 1/16" worth) between it and the arrow. This will keep your nock from binding your arrow at full draw.
The results will look like this:
You are now ready to start the tuning process. Remember that you might have to adjust your nock heights during the tuning process. When you find the right spot, go back and tighten the nocks with your crimping pliers. Don't overdo it. You don't want to damage the serving.
Once you have the right nock height and brace height for that particular bow, write them down and periodically check to make sure they haven't changed. If you are using a new string, it will likely stretch some and you'll need to move the nocks back to where they should be.