*How do I, 'manage the music on my iPod manually',*
Connect your iPod to your computer and click on it's icon when it appears in iTunes. Check the "manually manage music and videos" box in Summary then press the Apply button:
Managing content manually on iPod and iPhone
*and what is the point of choosing this option if I am choosing an automatic function to do it for me?*
Autofill allows you to add as many tracks as you want manually by dragging them from your library to the iPod then if you have any space left over you can have iTunes add a random selection of songs to fill up the space you haven't used.