Ok,
DRO stands for Digital Read Out and in the case of Mach is all the little windows you see with numbers in them. The ones I am referring to are the ones that are the positions of the axis (X Y Z and A)
Ref all will move the machine to your home switches and will let Mach know where the machines zero position is. This position is usually not very practical for machining and is what is called Machine Coordinates. You can however jog to any place you wish and zero each axis, this becomes your work offset zero position.
As an example you have just homed your machine, the Z is fully up and tool is lower left of your travel, you now move 100mm on X and Y and 50mm down on Z, you press the zero buttons and that will set the DROs for each axis to zero, you have just made a work offset. If you press the Machine Coords button you will see that the DRO change to the real position (X100, Y100 Z-50) press again and you are back to your offset position(X0,Y0,Z0).
Hood