1.) According to our friend Palmer:
°Balling, °Brix, or °Plato - These three nearly identical units are the standard for the professional brewing industry for describing the amount of available extract as a weight percentage of cane sugar in solution, as opposed to specific gravity. Eg. 10 °Plato is equivalent to a specific gravity of 1.040.
So basically multiply the Balling reading by 4, and that becomes the number of thousandths of the specific gravity reading.
2.) Take the reading at the level of the liquid that isn't sticking to the sides of the walls or sticking up the hydrometer. Take it from the level part of the liquid. Sorry I don't know exactly what to call it, forgot my high school chemistry terminology...
Hydrometers are usually calibrated to read 1.000 for distilled (or Reverse Osmosis-treated) water at 60°F. If your water was at room temperature, for example, that could explain why it was a couple thousandths off. Also if you were using tap water that may have dissolved salts and minerals in it, that will also throw off a calibration reading.
Give it a shot again with distilled water as close to 60°F as you can. If the hydrometer is good, that will show you exactly how to take a reading. If it still reads off, the hydrometer may need to be replaced.