AutoCAD (DWG) measures things internally as 'units'. A unit can be an inch, or a meter, or a mile, or 6", or 5km - basically a unit can be anything. Unfortunately DWG does not store internally what a unit is, so we have to tell it and this is the purpose of that dialog. For US architectural plans it is common for 1 unit to be 1 inch or 12 inches.
When the file is opened, Stardraw 'Zooms to Document', i.e. zooms to get everything in the document on to the screen. It is not uncommon for Autocad files to have the main drawing in one place and componenets used to create that drawing, like 'blocks', somewhere else. The 'somewhere else' can be a very long way from the rest of the drawing, so this could explain why everything looks tiny - you might have the main drawing at one edge of the screen and a few objects at the opposite edge. You'll be able to figure out where things are if you select all (Ctrl+A) - the selection handles will indicate the extents of the selection. Then you can zoom in to see what's where. Alternatively you could, for example, delete whatever is in, say, the bottom half of the screen and see what you've got left (F4 to Zoom Extents). If it looks wrong, undo the delete (Ctrl+z), delete the top half and zoom extents.
Generally you can check that you've got the units right by drawing a dimension against something whose size you know. For example, a doorway is usually about 36" so if the dimension shows 3.6" you know you set your units to be out by a factor of 10.
I hope this is helpful.
Kind regards,
Rob Robinson
Stardraw.com