As the code illustrates, the program is set up for tool wear compensation.  My understanding of how Mach 3 works is that only the diameter of the tool in the tool table is recognized for "wear". This is fine , except that if I enter a tool diameter that's smaller or larger than the actual tool diameter set in the program code, nothing happens.
If, however, I enter only the "offset" that I am looking for, then Mach 3 makes the change. For example, if I have a hole cut at .375 with a .125 diameter tool, entering .120 or .130 in the tool table does nothing.  If I enter +.005 or -.005 in the table, in the tool diameter column, then Mach 3 will open or close the hole by that amount.  Is this the way Mach 3 tool comp works? Or is there something missing in Mach 3 configuration? thanks tc
(POST DEV  - NovaLab)
(NWDTOOL N" 1/8 FLAT ENDMILL" T1 D0. F.375 L2.25 CD2. CL1. SD2. C0)
(NWDSTOCK X5. Y12. Z.375 OTC OX-2.5 OY-6. OZ0.)
N100 G00 G17 G20 G40 G49 G80 G90
N110 T1 M06 ( 1/8 FLAT ENDMILL)
N120 (MAX - Z.25)
N130 (MIN - Z-.25)
N140 G00 Z.25
N150 G00 X1.388 Y1.2101 S2000 M03
N160 Z.2
N170 G01 Z-.125 F36.16
N180 G03 X1.513 Y1.0851 I.125 J0. F26.16
N190 X1.638 Y1.2101 I0. J.125
N200 X1.513 Y1.3351 I-.125 J0.
N210 M00 (WARNING-CUTTER COMP APPLIED ON ARC MOVE)
N220 G41 D1 X1.388 Y1.2101 I0. J-.125
N230 G01 Z-.25 F36.16
N240 G03 X1.513 Y1.0851 I.125 J0. F26.16
N250 X1.638 Y1.2101 I0. J.125
N260 X1.513 Y1.3351 I-.125 J0.
N270 X1.388 Y1.2101 I0. J-.125
N280 G00 Z.25
N290 G40 M05
N300 G90
N310 M30
%

For example, if I have a hole cut at .375 with a .125 diameter tool, entering .120 or .130 in the tool table does nothing.

How are you determining that it's doing nothing?
Mach should be compensating based on the diameter entered in the tooltable. If you put in .05, you can visibly see the difference on the toolpath screen. But you won't be able to see it if the difference is only .005.

Try this. Set the tool diameter to .12, and enable Single Block mode. When you get to lines 240-270, you'll see that the DRO shows an offset of .06 from the commanded position, which is correct.
Not change the diameter to .13, and do the same thing. You'll now see the DRO show a .065 offset.

I just tried it here, and it's working correctly.

Now, if you're actually making holes and the sizes aren't changing, then the issue is probably with your machine.

Thanks for the quick reply. I am using a caliper to measure the diameter. Yes, .005 may not be much, but  I had tried larger numbers.  I have been checking the machine since all my holes fall short some .020 from the set diameter. I've checked for backlash, I've changed bearings, and it all seems ok.  I've changed router and bits as well. Finally, I had decided( for production purposes) that I  had to get things moving again, thus the wear comp. Here's my example.... a .375 hole comes in at .355. If I enter .100 in the tool diameter table, I should get a hole larger than .355. It doesn't. If, on the other, I enter a -.020, Mach 3 opens the hole.
I've spent two days on this before seeking help, given that at this point I've exhausted all possibilities. The holes are round, but they always come in small. Yes, I measured the tool diameter and it's .125.  I've reduced acceleration and velocity settings and calibrated the steps.  A micrometer shows accuracy within .001".

The only thing that I have not tried is a multipass in addition to a multi depth code. I notice that the wear correction barely travels one turn. Also, when in tool wear compensation mode, Mach 3 shows a spiral pattern despite the machine cutting correctly.
tc