[Reece]

Can't tell from your picture but some tuning capacitors have a screw and lock nut on the rear of the frame behind the tuning shaft. Adjusting that will move the shaft and thus the rotor plates of the cap in and out to center them with respect to the stator plates.

If your cap doesn't have this adjustment feature, the rotor plates will have to be carefully bent so they don't touch the others. Blast clean the plates first with some electronic cleaner, like CRC electronic cleaner available cheap at auto parts stores. It has no oil in it to gum up things. Your ohmmeter is your friend in this instance as you check plate clearance.

Also, there will usually be a brass spring often on the center "wall" of the tuning cap between the two sets of stator plates. This spring is an electrical contact between the cap frame and the rotor shaft. This spring and the part of the rotor shaft that it bears against needs to be clean and shiny or you'll get crackling even if the cap plates don't touch.

Signal generators all work about the same. Just remember to keep the lowest signal that you can still hear with the volume on the radio under test turned up and you'll get the sharpest tuning. Internal modulation means that an audio oscillator inside the S/G provides a tone, otherwise you'd have an unmodulated carrier (like a station on the air with no music or speech going.) External modulation means you could feed an audio signal into the S/G and transmit that via the carrier that the S/G produces, like a mini-transmitter.

One trick to remember if you don't have a frequency counter: 455 x 2 = 910Khz. If you have a radio station locally on 910, you can tune the S/G around 455 and beat the first harmonic of the signal against the 910 station tuned in accurately on an operating radio. Tune the S/G for zero beat against the radio station. At zero beat when the squeal goes down to zero, you'll be tuned exactly to 455Khz.