When I installed my Dyna-S, I timed it to the full advance marks, with the engine around 3000 RPM. This way I knew I was getting full advance where it counted. I think when they say "not exactly", they refer to the way the full advance is marked. As long as the pointer is between the two hash marks, it's sufficiently advanced.
The inlet tappets are on the side with the carburetors, and the exhaust ones are on the side of the head where the mufflers attach.
When the T mark is lined up for cylinders 1&4, both pistons will be at the top. However, one will be on the compression stroke (with both valves closed and the tappets loose) and the other will be on the exhaust stroke, with the intake tappet loose and the exhaust tappet applying pressure to the valve. So, if you are doing cylinder 1 (at the outermost left cylinder) and one tappet is tight, roll the engine over one turn and try it again.
"TDC" Stands for Top Dead Center, meaning the pistons are at the highest point in thier cylinders. The igniton timing is set to fire a bit before the piston reaches this point, as it takes a brief moment for the air/fuel mixture to ignite.