First: an upright reticle
The dial only means something if the reticle is upright, with its 0 (or 12) at the top, vertical. On German equatorial mounts this is the case when the right ascension (RA) axis is in its home position: counterweight bar straight down, tube above the mount.
To check it once and for all, in daylight: set the counterweight bar vertical (a spirit level held against it helps), look through the polar scope at the vertical edge of a distant building or a pole, and see whether the reticle’s 0–6 line is parallel to it. If not, loosen the ring or screws that hold the reticle, turn it until the 0 is at the top, and tighten.
Then, every time you align, put the RA axis back in that position before looking: the position given here applies directly, with no calculation.
The dial allows for the polar scope’s image. Almost all polar scopes invert it: like a small astronomical telescope, they turn the image upside down (a 180° rotation). To check, look at a distant object in daylight: if the top of a tree appears at the bottom, the image is inverted. If not, untick “My polar scope shows an inverted image”.
How precise does it need to be?
For visual observing a rough alignment is enough. Within 1 or 2° (latitude on the scale, mount facing north, Polaris roughly centred in the polar scope), an object stays in a low-power eyepiece for many minutes; you just re-centre it now and then. You do not even need the polar scope.
For photography the error shows. A polar alignment error E makes stars drift by at most E × 2π × t / 1,436 min during an exposure of length t: with E = 5′, about 7″ in 5 minutes. A polar scope used well gives a few arcminutes: enough for a camera lens, often borderline for long exposures at long focal lengths. Astrophotographers then aim for better than one arcminute.
The atmosphere lifts anything low in the sky a little (about 1′ at 45° altitude): the methods below take it into account, the polar scope does not. It does not matter visually.
For imaging: drift alignment and plate solving
Drift alignment (Bigourdan’s method): follow a star near the meridian and the celestial equator with an illuminated reticle eyepiece or a camera, and correct the azimuth from its drift in declination; then repeat with a star low in the east or west to correct the altitude. It is slow but precise, and you do not need to see the pole.
Plate solving: capture software recognises the stars on two or three images taken while turning the RA axis, works out where the axis points and tells you which way to turn the bolts. Open-source programs do this, for example N.I.N.A., Ekos (KStars) or the drift tool in PHD2.
Southern hemisphere: Sigma Octantis
In the south no bright star marks the pole. The nearest, Sigma Octantis, about 1° from the pole, is only magnitude 5.4: visible to the naked eye only under a really dark sky, and barely in a small polar scope. This page gives its dial position the same way; it turns clockwise.
Many reticles therefore draw the “Octans trapezium”: Sigma, Chi, Tau and Upsilon Octantis, four stars of magnitude 5 to 6 around the pole. Turn the RA axis to orient the drawing like the trapezium in the sky, then adjust azimuth and altitude until each star falls into its small circle.
Star positions: Hipparcos catalogue (ESA, new reduction by F. van Leeuwen, 2007), with proper motion. Precession, nutation and sidereal time: the open-source Astronomy Engine library (Don Cross). Place search: OpenStreetMap’s Nominatim.