Step 4: Drill the holes
You might have guessed it. You need to drill some holes now. The first hole to drill is the one the goes from edge to edge. The 3/8" dowel will go into this hole. I would recommend drilling a test hole to see how well the dowel fits. Sometimes the tolerance on store bought dowels isn't as accurate as you may need, so you may need to sand the dowel or choose a different bit.
I used the drill press for this. Drill on the line, about right in the middle of the edge, all the way through. If you're off the line, it's not a big deal. Just be sure that if you're posting instructions online on how to make this device, remember to make fun of the fact that you goofed a bit so people don't realize you have no idea what you're doing.
Once that hole has been drilled, change bits to the one you will need for the larger dowel (in my case 3/4" Forstner bit) and drill through the face of the stock. You don't want to drill right on the witness line, because it's against the bylaws of your homeowner's association. Instead, drill about 1/4" away from the line. Drill straight through. It is important that this hole is perpendicular to the face. If it's not, the gauge will operate a little funny, which may be a quirk you're willing to deal with, but really this shouldn't take long to do over.