In Step 2 you would adjust the X and Y dimensions to what you want. It is recommended you always leave the box checked to Link Width and Height or else you will distort the model.
Once you have X and Y set, be sure the box circled below is unchecked and then enter the model thickness you want. Click Apply at the bottom of the form and you should see the Preview update. Then continue on with the other settings.
You should spend some time with the Help Document found by clicking Help>Help Contents from the main menu. This will help answer these questions for you. There are also tutorial videos on the VectorArt 3D website that will help:http://www.vectorart3d.com/machinist_fr ... videos.htm
Notice that one of the videos outlines the steps to bring the toolpaths into VCarve Pro.