"If I held the pinion really still, I would expect that the ring gear would have just a little play movement. Is this lash?" That's correct. By adjusting the carrier bearing adjusting nuts, you are either moving the ring gear into the pinion gear(less backlash) or away from the pinion gear(more backlash).
"Does it matter what part of a ring tooth the indicator is touching? The pic in the manual is showing somewhere near the outside edge of the gear tooth." The outside part of the ring gear is the best place to set the dial indicator.
Runout is taken on the back of the ring gear. You're checking to see that there isn't any wooble in the ring gear. There should be a spec somewhere.
Do the instructions have the specs for the bearing preloads. This is very important. I don't want to scare you, but if the preloads are not correct, you could ruin bearings and be doing it again.
http://www.thedirtforum.com/differential.htm
