No need to apologise, when it comes to something you don't know about, there's no such thing as a stupid question, only a stupid answer to a question. It should be as simple as you suggested. The installer is supposed to sort all of this out for you.
The Devs/DOSDrivers/CD0 file should be a text file with settings information in it. If you could post the contents of this file, it might prove helpful. Also, the icon for the file might have some information in it's tooltypes section. Usally the UNIT property is set there (it should be 0 for CD0).
I never had a Squirrel, but my old CD was connected via an PCMCIA atapi interface, which worked fine for years (I recently replaced with a network card). Your problem might be something to do with your DOSDriver's configuration (which will hopefully be easy to spot) or something else SCSI or (hopefully not) hardware related.