I use the exact same tool probe that you have pictured, I actually am using it on 4 machines in the shop.
I set Work Offsets with it, X, Y, & Z!
https://www.amazon.com/RATTMMOTOR-Automatic-Normally-Setting-Engraving/dp/B08LK93NTC/ref=sr_1_7?crid=22CVGMZGCWA98&keywords=tool+setter+cnc&qid=1689859527&sprefix=tool+setter+cnc%2Caps%2C98&sr=8-7I use this to set my tool lengths.
A lot of "Common Practice" is to have a know the stickout of the tool per the gauge line of the toolholder; however, I found it is much easier to just let your tool offset be the machine coordinate position of the tool setter position and let it be what it is. All I do to get my Z Work Position is to touch off the work piece with whatever tool I want and add the work offset to that machine position, so if I'm using the Tool Probe in a macro, just add the Tool Probe's Length Offset to the current machine position at the point at which you want your Z Zero.
Then as a quick sanity check, the offset should be the distance between the tool setter and the work piece. So if your material is 1.25" above the tool setter, your offset should be 1.25".
You have to have a known Machine 0 for all of this to work, so make sure you have a reliable way of homing your Z axis at least.
About as clear as mud I'm sure... but it works well for me on my Mach4 Machines as well as the '01 Hass I run almost daily.
I then set up a tool length offset for the tool probe as well.