If you are using Java SDK 1.5 or higher, type -Xlint, followed by a space, in front of $(FileName).
Click the button beside the "Initial Directory" field and select File Directory. You should see $(FileDir) appear in the field. This ensures that your compiler runs as if it were in the same folder as your Java source file.
Lastly, check off the box for Capture Output. This will show the output to your compile in a small window at the bottom of the screen. If you prefer that the output show up in a larger command-prompt window, do not check this option.
Click the Apply button to save your tool changes.
When finished, your dialog box should look like this one: