Choose a tool bit with a slightly rounded tip, like the one described above in the tool grinding section. This type of tool should produce a nice smooth finish. For more aggressive cutting, if you need to remove a lot of metal, you might choose a tool with a sharper tip. Make sure that the tool is tightly clamped in the toolholder.
Adjust the angle of the toolholder so the the tool is approximately perpendicular to the side of the workpiece. Because the front edge of the tool is ground at an angle, the left side of the tip should engage the work, but not the entire front edge of the tool. The angle of the compound is not critical; I usually keep mine at 90 degrees so that the compound dial advances the work .001" per division towards the chuck.