I don't have Match but my understanding is it will look at your songs. If it finds a match in the store and your track is eligible (e.g., above a certain bitrate so you aren't just trying to match some store's demonstration version) it will use the Store version, upgrading your version if it is only a slightly lower bitrate. If it doesn't see a match it will use your version (though I believe it will downgrade lossless files; again I don't have it so I am not up to date on details).
I guess one thing is it takes time to Match a large library, especially if you have a lot of unique material that the Store doesn't sell. That dotted line business sounds like iTunes is still processing files. I've see other dotted line discussions in the context of files that have not fully downloaded, or iTunes syncing needing to be turned off and then on again for some inexplicable reason to get it to work..