A dial indicator is a tool used to measure linear displacements. It accomplishes so via the use of a plunger that's constricted to a measured linear movement. Simply, when the plunger is pushed into the body of the tool, the distance it is pushed in is "indicated" on the "dial" face of the tool. This is useful for any kind of precise measurement of thickness, depth, width, and can even be used to ensure a machining device or tool is accurately trammed.
If the gears don't align and interface properly, first ensure they are oriented with the proper gear in the proper location and proper orientation. Also ensure the layering of the gears is correct and in order. Another possibility is that the holes within the body and top components aren't lined up correctly.
If the plunger is difficult to move: The indicator works best when the dial is rotated to move the plunger to it's location rather than using the plunger to rotate the high gear ratio.