Loosen #2 and then screw in #1 until the blade contacts the mandrel, this should straighten the blade and make it level and on the same plane as the mandrel. Then tighten #2 and it should stay parallel to the mandrel as #1 is moved in and out.
Its your neck turning tool and you will need to play with it until it is adjusted properly, your the only one that has it in your hands and can make any adjustments.
You can also email or call Sinclair for advice.