Not sure I can clarify in words. I draw the design on a fully scraped/sanded stock, then stab in straight down, similar to your figure 1. Then, I remove the ground wood surrounding the carving so that it is parallel to the original contour, leaving the carving above the new surface level. The carving doesn't need to be that high above the ground work to stand out, 1/16 inch is plenty. Some people advocate making a slight cut similar to your figure 2 to accent the outline as it will catch the stain and show up darker. It does look good if done well, not so good if poorly executed. A good resource is John Bivens excellent chapters in the book Gunsmithing Tips and Projects by Wolfe publishing. He clearly explains the process. There may be other good resources including tutorials on this site but I like print media where I can read and reread until it finally sinks in.