Gav, there’s more words here, but I’m not sure that the explanation is much clearer. I’ve done a very simple sketch, which might help, and as soon as I have the necessary privileges in this forum I’ll edit this post to include it. In the meantime I’ll try to answer any more questions.
Because the edge of a blade is angled, the pointed tip, which is the bit that comes into contact with the vinyl, and which does the actual cutting, is not aligned with the centre axis of a blade, but is off to one side. The distance between the centre axis, that the blade rotates around, and the tip is called the offset.
This, in general physics terms, is known as the castor effect and is important because unless it exists the blade, in operation, will not rotate to align itself with the direction of the cut. For the same reason the wheels on the bottom of your chair are offset, and so are the front forks on your bike. Riding “no hands” would be impossible without castor effect. On a cutter the distance is usually somewhere in the region of 0.25mm and 0.5mm. On chairs the distance is bigger, and on bikes larger still.
Drag knife cutters are built around this fact and the offset of the cutter and the offset of the blade should be identical. This is why you should always specify your cutter when ordering blades.
The ability to adjust the cutter offset is usually available in its set-up procedure. This is to enable you to make allowances for manufacturing tolerances in the blade and enable some fine tuning in the event of a less than perfect cut. Often the cutter software includes a test procedure, which comprises a series of square or rectangular cuts. When the offset is too low the squares do not close up properly and when it is too high the squares are distorted.
In theory the fine tuning procedure should be gone through every time we change a blade but I suspect that in practice most people, like ourselves, just set everything to default and don’t worry about it unless the machine is cutting less than satisfactorily. Machining tolerances are so good these days that for general vinyl cutting we can get away with that and only need to start playing around if we get problems trying to cut something particularly intricate.