Also, as long as you have enough travel on the gauge you can check your backlash with the indicators.

I found the carriage wobbles too much. The is one of my better inventions I put on thingiverse: http://www.thingiverse.com/thing:171900

I think it gives accurate enough results that you could use it to adjust the z-stop when it gets out of adjustment, but you'd have to get it adjusted by other means first, then use the dial indicator to see what reading it gives when you zero the Z axis and remember that so you can try and get the same value next time you are fiddling with it (but that's just a theory - I tend to adjust the z-stop by printing a single layer calibration cube and seeing how well the bottom layer prints).

+1
I printed a similar rail mount, but very basic where the dial indicator fits in between the X belt. http://www.thingiverse.com/thing:177545

I think it gives accurate enough results that you could use it to adjust the z-stop when it gets out of adjustment, but you'd have to get it adjusted by other means first, then use the dial indicator to see what reading it gives when you zero the Z axis and remember that so you can try and get the same value next time you are fiddling with it (but that's just a theory - I tend to adjust the z-stop by printing a single layer calibration cube and seeing how well the bottom layer prints).

I was hoping to use it to get the proper nozzle height.

As far as using it, just start with a place of reference.  Since the center is the most used area, move the indicator over the middle.  You dont have to home the bed.  The indicator would be best placed so its in the middle of its measuring range of travel.  You can use the bed to adjust here.  Now zero the indicator.  From here all you do is move the indicator to different points on the bed and adjust with the 3 screws on the bottom.  I use a 9 point grid.  You're not zeroing the indicator at each point though, you have to keep your reference point and adjust the bed until its close to zero.  I aim for no more than 0.05mm variation.

I hope this helps, when i get home i can post the stl and a short tutorial with pictures on how i do it if anyone would like.

2) How do I use it? What settings should I use to leveling bed? How many MM?