How do you zero the small inner dial?

The is no zeroing the small dial. There should be strain on the gauge, with the small indicator reading above zero, then set the dial to zero - then the gauge is zeroed to the thickness of the material used for the strain.

What is the purpose of the round 'knob' the clamp? Not the handle that tightens the clamp but on the other end of that handle?

While it's a bit difficult to grasp what your asking, I'm assuming you mean the black junction partway along the swing arm (the silver but that extends laterally) If you're assuming the other two knobs manage pitch, yaw, tilt, and extension, you'd be correct. The last junction isn't wrapping the silver rod, however it may appear in the images. It bisects it. that's actually two silver rods, the end of each connect to the junction you're asking after: (| |) ========| |========= This give you a bit of leeway in the arm itself. Some give. Yanno, so the $300 Starrit dial indicator (one inexplicably has chosen to mount on a $20 Wen magnetic arm) isn't mangled by the angle of the dangle if your test setup gets rearrangled. The knob basically extends a threaded rod through the cap and exerts force on the opposite side, making it rigid and increasing the accuracy of your measurements (typically up to a full decimal point 0.01 -> 0.001). ...at least, ostensibly that's how this is supposed to go. Again, though: $20. Wen. Made from the finest Chinesium alloys (the only "steel" this device has ever seen is spelled with an "a" and refers to the originator's patent application. Now, no offense intended here, but by virtue of the fact you didn't know this (not that there's any reason you SHOULD have; I'm not being judgy here, honest), then the level of accuracy this tool is capable of providing will almost certainly satisfy your needs. One you've gotten deep enough into milling/machining to CARE about that kind of delta (for woodworking even this is almost overkill; the dimensional instability of wood due to humidity alone cancels out anything at the tenth range), you'll have run into the issue and the solution organically. If this IS for woodworking, just get the dial indicator and some 123 blocks. Really the only practical application for it there is to ensure your blades are parallel to the miter slot on your table/bandsaw. I suppose you could use it to align a tormek perfectly square too, but if you're running a Tormek, again: you're prolly not LOOKING at these.

For the manufacturer or seller - Why doesn't the needle point straight up when at zero?

It does the dial face is adjustable. I use precision devices constantly and my company has to calibrate them every 6 months and this is one product I've had no issue with

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Manufacturer	WEN
Part Number	10714
Item Weight	3.01 pounds
Package Dimensions	10.79 x 4.33 x 2.76 inches
Country of Origin	China
Style	Three-Arm Magnetic Base w/ Quick Release
Item Package Quantity	1
Included Components	Magnetic Base for Dial Indicators
Batteries Required?	No

WEN Magnetic Base for Dial Indicators, Three Segment, Industrial Strength with Quick Release (10714)

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