Physical dimensions are in inches. The Tool Diameter parameter is referring to the diameter of the curvature at the very tip of the tool that will be used to form the groove optics, as this determines how deep the tool should be pressed into the surface for the optimal groove profile. Depth Per Pass should always just be kept larger than the Groove Depth so that it only does one pass for forming grooves. The Inches Scale parameter indicates how large the hologram is, in inches. The Precision value determines how accurate the shape of the optics will be - how many line segments or circular arcs are used to describe the optic's shape in G-code coordinates.
