The user-menu is like the standard Workbench, rightclick pulldown menus.
When editing or creating such, you do this via the 3 lists-window as you
described.
The first list is for the name of the menu, like Tools, Commodities, Apps, or
whatever you intend to create.
The second list is the actual program-item, i.e what it should launch/do
when selected.
The 3rd list is for submenu-items, like Apps->Unpack...->Zip, LhA or;
If you've created a menu called Gfx, the second menu could contain a
menu called Programs, then you could add all graphicsprograms as
subsequent sub-menus.
The names are edited just below the lists, you can also use Drag n' Drop
quite extensively.
You can drop the icons of the programs in the user-menu editor and they
will be added using the name of the file.
Do save your menu every now and then when building it...
I hope this clarifies your problems?