One of the first modifications I made to my old Unimat SL lathe was to add dial indicators because I am use to designing and machining parts using inches instead of millimeters. The lathe handwheels are graduated on the collars in increments of 0.05 mm or close to 0.002" which is too coarse for my work.
As an improvement, I added adjustable dial indicators graduated in 0.001" increments to the x, y and z axis. I use a dial indicator with a 2" travel on the x-axis but still needed a way to move the indicator to be within the minimum and maximum range of the part being machined. However, sometimes using a 1" long dial indicator extension is far easier way to get within range.
All the parts are made from 6061 aluminum and 1/4" drill rod. Shown in the third and fourth photo is the arrangement for the y-axis indicator. Also shown is the x-axis left-hand adjustable carriage stop which slides along another 1/4" drill rod that runs the full length of the lathe ways. This carriage stop and the right-hand stop can be swung down and out of the way when not used (seen near the right hand side in the fourth photo).
I hope this helps to explain how the x and y-axis dial indicators are installed on the small Unimat SL 1000 lathe. I routinely use these dial indicators for both the lathe work and the milling work. These are particularly useful in laying out and drilling the x and y positions for circular hole positions when the part is too large for my small dividing head.