The knobs move the bullet impact. If you move the elevation turret up, the bullet impact moves up. Same with the windage turret. If you are shooting 2" left and 1" low you need to move the windage turret to the right and the elevation turret up.
The 1/4" clicks are only correct at 100 yards. If you're shooting at 200 yards the values are different. They are 1/4 MOA clicks. 1/4 MOA at 200 yards is 1/2". 1 MOA at 100 yards is 1". 1 MOA at 200 yards is 2".
To properly understand this, its important to know that you're adjusting your optic's Point of Aim (POA) by way of an angle and not a specific 1" over or up/down (Minute of Angle is the next smaller measurement from degrees - Degrees, minutes, seconds...).
Think of your position as the center of a circle and the target as a point on the outside edge of the circle (say at a 100yd radius) and your adjustment as another point 1" away from the first point.
If you put a larger circle around that first one (say at a 200yd radius), then all your adjustments are moving the reticle double the distance in MOA from one point to the next (because you're now 100yds farther away, or going out to a circle twice as large). 1 Minute of Angle, or 1 MOA is not approx 1" at 200yds like it was at 100yds - its now a little more than 2" (a Minute isn't exactly 1" at 100yds, its about 1.047").
Mils are similar, but done via a Radian Arc (which is where "pi" comes from - if you take the radius of a circle and use that radius to mark two points on the outer part of the circle, you'll be able to get around 3.14 of those in the whole circle. 1/1000th of that is a "milliradian".
That link that Killshot posted is one of the best write-ups on the net - print that badboy off and put it in the crapper and read it every time you're in there - it took me a few times to pick up on all the math.
Mils and MOA are used not only in the knobs for adjustment or doping, but also in reticles for measuring (if you have an approx height or width of the target) distance to the target. The formulas for measuring distance are typically easier when using US measurements and MOA (feet/yards/inches) or if using Metric measurements and Mils (Centimeters, Meters, etc.).
Trying to convert Mils to US measurements is a pain in the ass (I'm not real familiar with how objects relate to metric measurements, so I've not tried to measure something in MOA and convert to metric units).
