On the DayZ wiki, each weapon has a stat called "zeroing." Some weapons say yes or no, but the AKM says, "Up to 800m." I have gathered that is has something to do with accuracy and I can use Page Up/Down to adjust it, but what exactly am I adjusting and how do I do it effectively?
The video below is from the DayZ Wiki and explains zeroing and distance estimation using mildots. It is very helpful to watch somebody do it correctly, as well as having the formulas available to you. You can also see him to take the shot to prove that these calculations and mil-dot estimation actually work in game.
Please note this is all true for a M16 and is what I was taught while in the USMC (would assume it is true for most rifles although it could be a slightly different)
In real life when you use iron sights some rifles allow you to adjust two things. Range and wind. You do this by shooting at a target 36 yards with the rifle set on 300 yards away because with bullet trajectory 36 yards = 300 yards. (see picture below for an explanation) So once you shoot at a target 36 yards you should have a grouping, which is where all the rounds struck the target. Now this will usually be off from the center point which you were aiming at. Lets say your grouping is above and to the right at what you were aiming at. You would adjust the elevation to be slightly lower and then the windage knob to be slightly to the left. Fire again and now your grouping should be in the center of the target. This is now your BZO (Battle Sight Zero ) for your rifle.
DAYZ ANSWER BELOW
Now in ARMA/DAYZ which is based on a military sim, you don't ever need to do this as the gun is automatically configured that you did do that. But what remains is the elevation knob. So if you look at the picture above you can see that the iron sights determine what your pointing at a distance is what your aiming for. So if something is 500 yards away you want to adjust your elevation to match that so you can put your sights on what what you plan on to shoot and let the sights automatically determine bullet drop for you.
Now you can also do, what is called "Kentucky Windage" where you adjust where you are aiming and not adjust the sights. For example you know that you are shooting at something 500 yards away and your sights are set for 300 yards. You will need to be aiming above what you are shooting at since with bullet drop you would be short.
Long story short for DayZ I would put it at 200 yards since you will be normally shooting at things rather close to you. Unless you plan on trying to hit something really far away then adjust the elevation to how far away you are from your target.
UPDATE ON HOW TO FIND RANGE
You have two ways to find out the range, some servers have nametags enabled, this will show you the distance you are from the target when looking at a player, and there is also a range finder item. Which allows you to find out the exact distance on all servers. You can use both of these methods to get a feel for what 200/300/400/500/etc yards looks like, then adjust your rifle accordingly using PgUp or PgDn.
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