When you first set up a bow you level the arrow as you are intimating. Then you get to tuning and you may have to move the nocking point or rest up or down to get good arrow flight. Usually if there is any adjustment needed the arrow will not be level but aim slightly down, meaning a nocking point a little above square (level), but not always. As I said, you get to tuning and wherever it ends up that's where it needs to be.

Some things to check while setting up the bow is that the limbs are both adjusted the same (tiller). If it's a two cam or binary cambow the cams must be synced also. If it's a single cam then the cam needs to be oriented for level nock travel or at least closely so.

Much the same can be said for the left/right position of the rest. You satrt out with the rest on center and adjust it right or left as necessary to achieve good tune. Methods of tuning include paper, bare shaft, walk-back, and or french. No one method of tuning is really the best one. I often use several just to check one against the other. For the record I never paper tune.