I usually don't use the "lots" button. For example, say I've got 2 items, and want to sell them in 1 auction with a quantity of 2 available, I would do this:
If you use the "lots" button, then the number of lots listed determines the quantity of individual lots available for purchase in a single auction. So this:
Would indicate, say, you've got 6 total items, but you're grouping them into two separate lots of 3 - so each purchase would be for 3 items.
Hope that helps.