They are saying to place the knob on the door in the same position as other doors in your home, and that the standard placement is that the center of the knob - the vertical dotted line - be 2 and 3/8 inch from the edge.

Go to Lowes and tell them you need a drill bit for a pilot hole for a # 8 wood screw. It helps to take one of the screws with you. You can also check on the internet for the exact size bit, but as long as the bit is smaller than the screw, you will be fine.

It looks like you need a 1/8 inch drill bit per the site below. I found it by typing in:
drill bit pilot hole #8 screw

Here is a link that might be useful: drill bit sizes

Thank you both!!!