Denny, you are correct with the connections: red to the points/coil negative terminal and black to ground. I don't know about your Sears dwell meter in particular, but typically, the Set line is to adjust the meter circuit for internal battery voltage: you should be able to set the meter needle to the Set line by turning a "calibrate" knob when you have the selector switch set to a position for "calibrate." Also, there should be a small opening in the meter face to use a small screwdriver to adjust the mechanical zero of the meter movement: the needle should be at the mechanical zero when holding the instrument in position for normal use.
Most dwell meters have a position on the scale, either a line or a colored bar, for Distributor Resistance. When the meter is connected for measuring dwell, key on, engine off, points closed, the meter reading at or above the Distributor Resistance line, or within the colored bar, tells you that the DC resistance in the distributor/wiring/points/ground is low enough so as not to upset the dwell reading.
If you can post a picture of the instrument, I might be able to tell you more about it.
As for the dwell setting for your engine, something in the range of 32°-34° comes to mind, but I'm sure someone else can provide the original specification. As a rule of thumb, a dwell setting of 55% of the lobe angle is a good number, absent OEM specifications. The lobe angle is the angle between cam lobes in the distributor: 360/number of lobes on the distributor cam.
Harvester
