You set the points gap at .016" when the point cam is at its highest spot and the points you're adjusting are opened farthest. That spot can be hard to see, just spin the motor a few times and watch the points arms move to find it.
Be sure you feeler gauge is clean, the slightest oil on those points will foul them. If that happens give them a quick blast with a quick flashing solvent like brake cleaner or electrical contact cleaner. The lube the sponge pads with a drop or two of motor oil.
Once the gap is set, disconnect the point wires where they connect to the coils under the gas tank. Connect one wire to a multimeter lead, ground the other lead, set it to resistance or continuity checker. Pull the left side alternator cover and turn the engine counterclockwise with a 17mm wrench. As you turn it that cylinder's points should close and you should see 0 ohms or hear the beep. When the alternator line hits the "F" range just before T the points should barely open and the resistance on the meter should go to infinity or the beep should stop. If it doesn't, loosen the adjustment screws and turn the whole contraption to adjust the timing. Set the giant right side points dial first with the big screws, then adjust the bottom points for the left side. The crankshaft and cam shaft both turn counterclockwise(as viewed from the left side) so to advance the timing(fire earlier), turn the points dial clockwise.
Now repeat this process for the other set of points. You use the same mark on the alternator...the crankshaft goes round twice for one turn of the cam.
The top points should fire the right cylinder, bottom should fire left. If you want to double check this, pull off one of the valve covers. The cylinder that firing should have its camshaft lobes pointed down and the rocker arms should be loose. It's worth noting that if you install the advance rod upside down the points will be backwards, but still run as long as you wire it backwards as well.
Once you've used this method to get the timing close, you can crank the bike and use a timing light set the timing perfectly. Well, never perfectly, but as long as both sides are firing in the "F" range on the alternator you're good.
The acceptable range is .012"-.016". As it runs the points gap will usually shrink from .016" due to wear. Or the points will get tiny holes in them that actually increase the gap more than the feeler gauge indicates. The only way to know exactly is with a dwell meter, but that's another story.
Here's more info with pictures:
http://www.650motorcycles.com/points.html