Ok first things first - the hair in your file works fine.
The button you have highlighted is not the right thing to use.
Select the curves on the surface and "duplicate surface curves" . Then hide the surface on a layer - trust me this makes life easier after when editing the shape of your hair. Now with these new curves select them and go to "Nhair > Assign Hair system > hairsystem1" (see image). But all of the above advise is also covered in part 6 of that training course at about 5:10. If you follow the training you can get some great results but it does take some practice.
And I am still learning (forgive the face - still working on the SS shatter)
Last edited by tweetytunes; 23-02-2014 at 04:02 PM.