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I'm building a Martin style guitar with a dovetail joint. I've dry fit the neck to the body and the center line and neck angle both look pretty good. The neck fits in snug and looks good from the outside.

The thing I'm concerned about is a 1/16th gap between the bottom of dovetail joint and the top of the neck block. I would think that that those 2 should meet and be glued together for strength and so the neck doesn't move under the pressure of the strings. Am I right in thinking that needs to be corrected or is that the way it's supposed to be?

If it needs to be corrected, I can think of a couple of ways. A shim or sanding down the bottom of the neck where it meets the body. The shim method seems like less risk and less work.

If the gap needs to be filled and I can go with a shim, should the shim be glued to the bottom of the tenon prior to inserting the neck or can it simply be coated with glue and driven into the gap by tapping it in? Any recommendation on the kind of wood for the shim - soft or hard?

The gap between the tenon and the heel block is normal. I would not fill it,

John is right you need that to be open
here is a link on setting the neck.
http://www.youtube.com/results?search_q ... etail&sm=1

If you fill that gap it may well be impossible to ever do a neck re-set on the guitar without some type of conversion.

here is a pick of a dovetail with out the fretboard . You can see the gap. The working surface of the joint is the cheeks of the tenon and the mortise.

Great information! I appreciate the replies, this will save me time, worry, and mistakes. Thanks guys!