I bought a setup block too and was very disappointed in it.  It was nowhere near accurate enough.  I wound up selling it.

Why this works is that the center of the cutter needs to be set to the middle of the board when cutting with the workpiece flat on the table.  The problem is, it's very difficult to measure to that point.  Instead, I use the top of the bit.  The offset you see (0.390") is the distance from that center point to the top of the bit, where it's very easy to place a height gauge.  I know that's the distance, because the joint was aligned perfectly meaning the center of the cutter was at the center of a board of known thickness, and I measured the height to the top of the bit and subtracted half the board thickness.

The distance to the fence is easy to measure.  The 0.1" offset is because that face where the center of the cutter slopes slightly, and the exact center is 0.1" behind the tip where you can measure.

Half of what we read or hear about finishing is right. We just don’t know which half! — Bob Flexner