I figured this one out...
The main issue is to enter the dimension of the setup aid you're using. I use an Edge Finder with a 0.200" tip for X and Y, And a 1.000" high Tool Setter for Z. After entering those values in the boxes, just jog to indicated zero on the aid and click the appropriate icon. Mach3 will calculate the true zero and set the DRO. The DRO should show 1/2 diameter value for X and Y, and the + or - value depending on which icon you clicked. The Z DRO should show Z+ equal to your Gage Block entry.
If you use the tool and cigarette paper trick, then enter the tool diameter + 0.003" (2*Top Brand paper thickness) for X and Y. Enter 0.0015" as Gage Block for setting Z.
Not on the page, but setting zero for a rotary axis requires a flat reference surface. If not on a fixture, then a parallel or similar clamped to the part. I use a pocket level (A axis) to get close. Then jog sweep a DTI along the reference surface, and jog step the axis until there is no deflection on the DTI... set zero.
Paul, Central OR