The

icon will only show you the hardcoded paths Mario will follow on the overworld. Of course you need your desired levels to be linked by these paths for the transition to take place. Once that is done, do the following:
While in 'Layer 1 16x16 Mode' (

) select the first level. Now press the

button. This dialog will open:
You'll want to look at the left side of this dialog where it says 'Direction to enable when
X exit is used'. You have 4 options (if using LM 3.0+). Normal Exit, Secret Exit1, SE2, SE3. Beside each of those options are drop down boxes. Select the direction you'd like Mario to travel in when the desired exit type is passed in your level.
You'll see options on the right hand side of this dialog that indicate the
initial level settings as well. These are settings you can enable if you'd like each option immediately without triggering events. These are useful for 'hub' tiles or Yoshi's house tiles. You probably wont need any of these ticked just yet for what you're trying to achieve.
I believe this is all that is needed to make Mario move in the direction you desire when the level is passed.
You'll likely also want to set up events to take place when you pass your levels. I personally like to go from event 0 upwards, so set your 'Base event for when above level is passed' to Event 0. Now click OK to return to the overworld. Select your second level and click the

icon again. Set the 'Reveal this tile on any of these events' to the event of the previous level (in this example; Event 0) and click OK again.
Now back on the overworld you'll want to click

to place your events. I suggest clearing all existing events (especially if you're starting from a vanilla OW) first by holding the PageUp key on your keyboard until the status bar in Lunar Magic reads 0x77 at the bottom. Now select all your events and remove them. Make sure to do the same thing with the Layer 1 events. Press

and follow the same PageUp key instructions. Now click

again and hold PageDown on the keyboard to cycle back to event 0x00 (look at the status bar).
Now we begin making your event. While still in

mode, click

and in the new window that pops up press the down arrow on your keyboard 4 times. This should bring you to a bunch of 'completed path' looking tiles. It's grabbing this information for right here:
Now it's as simple as selecting the tile you'd like to place as your first event tile, and placing it where desired with a right-click on the overworld. Once you are done placing all the tiles for that event, press PageUp and save your overworld. Give it a shot in game, and see if it worked for you.
The overworld can be a little daunting for new Lunar Magic users, but in my opinion it's one of the most fun things to mess around with in Lunar Magic once you get used to it.
I hope that helped you in some way. Let me know if you still need assistance.