Stuart, the first step is to rotate the crankshaft (which has the small gear on it) until the dot on the gear is at the closest point to the camshaft gear. Lift the camshaft gear (the big one) out of mesh with the small gear, and rotate it until the dot on the gear is in line with the dot on the crankshaft gear. Then slide the camshaft gear into mesh with the crankshaft gear so the two dots are close together, as in Chris' drawing. Remember the gears have helical teeth, so the camshaft will rotate as you slide it into place. You choose the right point and slide the gear into place. If the dots are not perfectly aligned, slide it back out, rotate it one tooth, and try again until the dots are matched.
The because the engine is only tight when you have the crankcase cover installed, it appears that installing the cover jams something, probably either the crankshaft or camshaft. Can you post a picture of the black gasket that goes in between the crankcase cover and the crankcase, please. That gasket is 0.015" thick, and the axial clearance of the crankshaft is only 0.008" maximum, so if you have left out the gasket, the crankshaft will be squeezed endways when you tighten up the screws that hold the crankcase cover, and the crankshaft will not be able to rotate freely.
