You need to line up the TDC mark, and set the cams to that. The other is for the spark timing (timing light reference).
Edit - sorry I am a bit tired and not following things too well.
You are correct that the timing notches need to be vertical in relation to the engine. Note that the tolerance for them is 0.5mm (I use 0.1 as a rule because I am anal). To measure that they are on position I do
1)turn the pulley ONLY clockwise, when you are facing the front of the engine, to TDC
2) measure from the cam cover stud to the collar (using vernier caliper)
3) measure to the edge of the notch
4) note that the collar is 50.8mm dia (from memory) and the notch is 4mm wide.
5) get the intake cam right
6) set the exhaust cam in relation to the intake cam by measurement.
7) turn the engine over 2 x complete revolutions and re-check.