You need two weapons one with the 1st hand checked and the other with the 2nd hand checked. If you only have one weapon entry then by checking both boxes under that weapon you are using it two handed. So make sure you have two weapon entries and that each one has only one hand equipping (1h and 2h). Hope this helps.
BiggDawg is correct on the how.
After you print your character sheet, it will list bonuses for multiple styles for each weapon - make sure you use the ones for what you're using.
Not very intuitive - no single line for your attacks. Helpful for if you mix-and-match weapons though.
Also, make sure that your off-hand weapon (#2) is light.
There have been a couple of bugs in Hero Lab in TWF corner cases (I haven't checked the current version to see if these have been resolved):
1) A sawtooth sabre in your off hand still applied the "non-light weapon" penalties, even if you have the Exotic Weapon Proficiency, used the Ancestral Arms trait, or had it as your deity's Favored Weapon class feature.
2) Monks using weapons for flurry showed half their Strength bonus and half the Power Attack damage on their off hand. (This was changed in a recent FAQ; Hero Lab will eventually catch up.)
If you're going to use Hero Lab for a lot of complicated characters or have a lot of home rules, I strongly recommend checking out the Hero Lab Community Repository. In particular, Shadow Chemosh's adjustment files (ShadowChemoshAdjustments_v2.5.hl) are really handy. It lets you tweak just about every possible thing about your character.
The custom character sheets on that page are also really nice if you don't use Hero Lab itself at the table.