First, you would need to create a template yourself, or just edit one of the two provided. They're in the templates folder.
In the setting menu, you can choose one of the other - it's a global setting.
WordPress blogroll links are a seperate category and are added in the admin menu. So this plugin takes the blogroll links and text and creates the thumbnails alongside.
You can also use it to one of thumbnails within any post or page.
This isn't very developed at the moment, but shows how it can be used to spice up your posts and pages.
Use [thumb]http://www.your-homepage.com[/thumb] to display a thumbnail of the website http://www.your-homepage.com in your page or post