Tool compensation in Vector

I know a few of you use vector CAD/CAM.

How do you set up tool compensation for a pocket say 1/2" dp .250
diameter tool with 2" X 3" pocket with 0.125 radius corners. Do you
tell Vector you have a .250 diameter tool and it creates a gcode
path that is .125" away to account for the tool diameter? Then ask
your cnc control to offset by the amount that the tool is "off" the
nominal .250 diameter?

Any pointers on how to do this? ( what menus's etc)

P.S
I want to make a file that EMC can handle.
dave