Have you read wazoos excellent manual on manual TDC?
Do so:
http://www.paulwasserman.net/SHIII/
It will offer you undiscovered possibilities and you will see SH3 in a different view - at least this is what happend to me after reading.
And to answer your original question:
1. id ship and check the box in the rec manual - ship type displays in notepad
2. estimate distacne by clicking on the first step of notepad and leveling the horizontal line now appering in periscope on highest mast.
3. guess Angel on bow (AOB)- click on 2nd step of notepad. The ship in the center is your target not your uboat.
4. lock target if you have not done so and click the stopwatch. Click again after some time (min 10s). Above values are used to estimate target speed. Check in the manual if the displayed value is reasonable. If not repeat steps 2-4.
5. click on the checkbox in the lower right corner of notepad to transfer data to TDC
6. LOS! (dont forget to open tube doors before firing or even better beforte TDC)
However I prefer to get my data from plotting and enter them manually in TDC. Its more accurate.