I do use this and hope I can explain how without getting you overly confused (sorry, have never thought to snap a pic).
First off I have a collection of "small jigs" made out of 1/4" dowels. They are representative of the length of "exposed" nipple (once screwed into the drum) for the few different nipples I have used (rifle length, pistol length and very short "snake eye" nipples) - flat on one end, rounded to the shape of the drum on the other.
I screw the drum into the barrel (or breech in my case, only build with a Hawken style flint patent if using a drum), to it's final "tightened in" location.
I then place the little dowel between the hammer cup and the drum and get all the geometry "correct".
I then take a fine tip permanent marker and draw the "circle" on the un-cut drum using the dowel as the guide.
I remove the dowel and the lock, put an X through the circle that was drawn (making sure the X crosses exactly in the center.
Then with the help of a flashlight, I center the guide on the marked circle. With the "bushing" removed from the drilling guide you can clearly see your marked circle/X and get things lined up perfectly.
Then just drop in the drilling bushing and get out the hand drill.
Viola' - a perfectly lined up hole ready for the tap..