Yup, glad you asked...
Get this guy... It's a micrometer. You will be using the probe end of it to measure mm's before top dead center, or TDC. (Some people refer to this as BTDC)
Okay, pull your flywheel, and your spark plug. Insert the probe the little measuring stick coming out the end of it, lol) of the Micrometer (or Mike for short) into the sparkplug hole. Be sure that the butt end of the Mike is resting evenly across the sparkplug hole. I rest the top of the Mike against my fender to insure that the angle that I'm holding it at doesn't vary. Hold the Mike firmly against the cylinder hear, as to where the only part that moves will be the probe. The idea here is to accurately measure the lateral movement of the piston within the cylinder. Okay so now turn the clutch side of the crank to move the piston, since you have pulled your fly wheel, and try to find TDC. Put pressure on the bottom jaw of the Mike so when the piston reaches its apex you will know. While turning the clutch side you will notice the numbers on the Mike going up and then start to drop. Find the exact point where the numbers on the Mike are at their highest. That's your TDC! Hold your clutch side right there, DO NOT LET IT MOVE. If it moves again, you'll be finding TDC again.
Now assuming that you have found TDC and haven't let the clutch side move at all, let's move forward. Okay so, leaving the Mike just as you had it, you have your measurement of where TDC is. You want to find your desired measurement of BTDC now (before top dead center). I set mine at 1.8 BTDC for stock. I have wanted to play with the settings but I stripped my crank nut... so fuck it. It works fine for me at 1.8 BTDC. The pug motors rotate forward, or clockwise if you are sitting on the flywheel side of the bike. With that being said, in order to find BTDC you will want to rotate the crank backward to find this. Now, if you have the option to "zero" your Mike do that now. If not then just subtract 1.8mm or whatever your desired setting is. Now that you have found 1.8 BTDC, hold that clutch side still, or risk doing this all over agian.
Assuming that you have found your desired measurement BTDC, let's move forward. Now you are going to want to find the exact point where the points open. You will want to set your flywheel exactly at the point that the lobe, or cam, on the inside of the fly wheel begins to open the points on the stator plate. Do this by sliding the fly wheel on the crank and rotating it forward, while looking at the points through the windows on the fly wheel. You will need a super well lit room, or a flash light, or both, lol. Some put the cellophane wrapper from a cigarette package between the points and when the points loosen their grip on the cellophane, it signifies exactly when they begin to open. I just eye it. All the while you should be holding the clutch side (or having a trust worthy friend hold it, lol) in the exact possition of your desired BTDC.
Assuming that the piston is at X.Xmm BTDC, and the the flywheel is at exact position where the points begin open, now you are going to want to set the flywheel on the crank in its exact position. Again, if you have let anything move, you are going to want to start all over. Now with at rubber mallet, smack the fly wheel on the the crank. This will set the flywheel on the taper of the crank, allowing you to let go and tighten the flywheel nut. Give it a few good smacks before you let anything move to insure that the flywheel is good and stuck on the taper of the crank. Be careful to hit the fly wheel dead center, and not of to one side. This will insure a good fitment onto the taper and it will protect against the off chance that you may knock the flywheel off balance.
Now that the Flywheel is set firmly in place, All is left to do is tighten the flywheel nut and put your spark plug back in. I use a impact wrench to take this nut on and off, but if you don't have one of these, you can just use a spanner, or a piston stop, or even the rope trick. It's up to you. If you have done everything correctly (assuming you chose a suitable X.Xmm's BTDC) , then your ped should be timed perfectly.
Now go ride it with a smile on your face, knowing you have mastered your shitty pug ignition.