First of all - check out this thread
http://www.subsim.com/radioroom/showthread.php?t=164131
This thread contains walkthroughs and tips for all variations of the TDC and targeting , both auto and manual.
The way I do it (on auto) is to lock the target , unlock and aim via the periscope at the area of the ship you want to hit and fire away.
Hope this helps matey.