This is a dial bore gauge, and economical models are available from Powerhouse and Goodson for around $100. Starting with the rear of the block, install one cap and bearing and zero out your dial indicator vertically to the i.d. of the bearing. Do not catch the gauge in the groove in the upper bearing shell, and do not measure near the bearing's parting lines, as it gets thinner there.
Use a micrometer to get the o.d. of the matching journal on the crank for the bearing you just measured. Again, good micrometers can be had economically from the same engine tool supply houses, and for this exercise you don't even have to be able to read the instrument. Just make sure to measure at least 30 degrees away from the oil gallery holes in the journal because they will throw off your measurements.
Lock the micrometer in position so that it won't move, and secure it gently in a vise. Now, place your dial bore gauge inside the micrometer like so. You will know you have the gauge square inside the micrometer when you get the smallest number. With a 2.45 main journal size, you're looking for a bearing clearance between 0.0021 and 0.0029 inch. If your measurements don't fall inside this range, you can get a set of undersized or oversized bearings in either plus or minus one-thousandth of an inch in diameter. By putting in just the upper shells of one set with the lowers of a standard set, you can make changes to bearing clearance by increments as small as 0.0005.
Repeat the process with the rod journals and bearings. Install the bearings inside the big end of the rod and torque to spec. (We'll get into measuring rod bolt stretch later, but this is a good time for that, too.) Rod-bearing clearance follows the same ratio, so for a standard 2.100 rod journal on the crank, the bearing clearance should be between 0.0018 and 0.0022 inch. If in doubt, err on the side of too much clearance to avoid the chance of a spun bearing.
Piston rings have to be file-fit. Proper ring gap depends on horsepower and compression. For a midlevel engine such as this, ring gaps for the top ring between 0.0022 and 0.0024, and 0.0018 and 0.0022 for the second usually work well. Begin by sliding the ring into the bore sideways and then spinning it until it fits fully inside the cylinder.
To properly measure ring gap, the ring must be level inside the bore. A cheap tool for doing this is to install a ring on the oil-ring gap of one of your pistons and insert it upside down inside the bore. The piston should push the ring down until the ring on the piston catches on the deck of the block. When you pull out the piston, the ring should be square in the bore.
We got this ring filer from Powerhouse Products, and it works well. Lower-priced ring filers such as this have no provision for measuring how much material you cut off, so you have to slowly inch your way up to the proper ring gap. But as long as you're careful, they do an excellent job.