Never seen one quite like that, I have to admit
Dial test indicators are usually used to measure relative changes in position, as opposed to measuring dimensions, like you would with a set of calipers or a micrometer. Some situations where you would use one would be
1) You want to see how much runout you have on your lathe spindle. You would put the indicator in an indicator holder, and attach that to your lathe headstock (often, indicator holders have bases that are magnetic, so you can just stick'em where you want). Then you would place the tip of the indicator on the inside of the spindle taper so that the needle is at around the middle of the scale. Then, you rotate the lathe spindle (usually by hand) and watch the needle to see how far it moves. The distance between the lowest value and the highest value is the "total indicator runout" or TIR.
2) You just mounted a vice on your milling machine, and you need to square it up. Place the indicator shank in the spindle (not powered up!), and place the indicator tip against the rear jaw of the vice. Move the table so that the indicator tip sweeps left to right on the jaws of the vice, and adjust the vice until the indicator needle does not move when you move the table back and forth (well, it may jiggle a little).
Basically, the indicator tip should move with very little pressure, and it should cause the indicator needle to move. Your indicator does not have a dial like most I have seen, the needle is at the top with a simple scale. If the indicator tip does not move, you may need to disassemble, clean, lubricate, and re-assemble. If you can't see an obvious way to open it up, you may be able to loosen it up by applying liberal ammounts of instrument oil (sewing machine oil, or 3 in 1 oil work pretty well). If the indicator hasn't been used in a while, the lube may be all gunked up.
Just remember, these are delicate instruments, so go easy on it. From the pictures I could find, it looks like a 0.0005" indicator with a range of 0.010"