You don't need to do anything to the pulley but watch it. The reason you move your distributor is because that's the part that's connected to your ignition wires, which in turn connects to your spark plugs. Your spark plugs then begins the burning of gas. That's it in a nutshell.
Your timing light works by detecting a current change in the wires connected to your plug. Now when the timing light picks that up, it'll flash the light. Thus the timing light. You can also use a strobe light if you want, although it might be kinda hard to point carefully at your pulley. Ha ha ha. That light, when it goes, it will correspond to the timing of your car, granted you're looking at the crank pulley.
http://auto.howstuffworks.com/engine4.htm
Perhaps that will clarify and make things a bit more visual. Now when you rotate your distributor, you don't change the location of the little rotor that spins around. You just rotate around when the wires get the current they're sitting around waiting for. So based upon that picture, the little spinning thing inside the black circle keeps spinning at the same rate, but the location of when the ignition wires meets up with the rotor has been changed.
NOTE: Advancing your timing you will probably need to run higher octane gas otherwise risk knocking and pinging, advance your timing with caution. (to learn more about octanes, there were quite a few good discussions about octane ratings on the forums before. I don't know where exactly they went but use the search function to find out more.)
now with that said, advancing should create more power, granted you're not knocking and pinging your motor to hell. When you hear it, you'll know something's terribly wrong. I wouldn't advance it too far...