I believe we currently recommend that you choose "Centroided" on the "Settings > Transition Settings > Full Scan". This causes Thermo software to be used in terms of turning profile scans into centroided scans. This vendor-provided centroiding usually works better than Skyline's method of summing all of the profile data across a m/z channel.
If you did not choose "Centroided", then you should choose "Orbitrap". The purpose of this setting is to tell Skyline how wide of a m/z channel to sum across when extracting chromatograms. The different types of mass analyzers all have slightly different behavior in terms of how the width of a peak depends on the m/z.
The library match tolerance is used when Skyline is looking at a spectral library, and needs to figure out which observed peak in the spectrum is the y7+ ion, etc.
The method match tolerance is used when Skyline is looking at a SRM or PRM file and needs to figure out which peptide a particular chromatogram or scan is for.
The dot color means:
green: all transitions had a nice looking peak
orange: more than half of the transitions had a nice looking peak
red: less than half of the transitions had a nice looking peak
The definition of "nice looking peak" depends on whether you have the menu item "Settings > Integrate All" checked. If "Integrate All" is checked, then anything that has an observable bump slightly above background is good enough. If "Integrate All" in unchecked, then the peak apexes all of have to be close to each other, and each transition's peak needs to be of similar shape.