I thought I perfectly understood how the kerf offset works but in practice I am getting baffling results. It has been my understanding that you would use a positive value to account for the laser beam width so that both internal and external features would end up at the desired size. Here is exactly what I have done and the results. I cut a 1.000" square with zero offset which resulted in a size of 0.990" actual. I then entered a positive Kerf Offset of 0.005". I then cut my intended design which is a router template and I designed the bushing slot to be 0.630" wide for a 0.625" diameter bushing. The resulting slot measures exactly 0.620" which seems right IF the cut were negative. This is not the desired outcome. I then entered negative 0.005" and cut again. This time the slot came in at 0.640" and the loose cutout does indeed measure 0.630". Neither is what I am want. So please advise me how I am to properly use the Kerf Offset in this context.
It would help to see exactly what you’re working with. I just tested with a simple rectangle and negative kerf made it smaller and positive kerf made it bigger. Post a screenshot of your Lightburn and possibly also upload your file.
It’s easy to get disoriented as to whether a kerf + or - is moving the line outward or inward
When I’m not certain, I just enter an absurdly large value like 2mm and check out the preview window, it will be very obvious which way + and - is moving it in that context so I can go back and enter it right
Let’s see if I can explain what it’s doing. It has something to do with hainge the entire shape cutting, Lightburn is moving everything toward the middle of the cut area. If you only select the oval, it makes it smaller. Better explained with pics.
I duplicated your shape and made a perforated layer of the duplicate with no kerf offset(dotted line is the original shape) and put a negative kerf offset. You can see how it will cut in the preview.
Here I only select the ovals with the same negative kerf offset. See how it handles them differently.
Yet the very same page shows it compensates for both internal and external shapes, as one would expect, but this isn’t happening here.
I ran yet another test using the small slot and then a 1” x 2” boundary with zero offset. Both external dimensions measure 0.010” small (as expected) but the 0.630” slot width measures 0.632” (an acceptable deviation from perfect). I don’t understand the discrepancy here between external and internal dimensions.
Notice how both offsets ar either going closer to each other or farther away from each other. That’s what happened with your graphic. The outer offset and the inner offset went in, making your hole too small.
The best way to see what is going to happen, in my opinion, is to copy the shape to a dotted line and use an extreme number kerf offset for visual aid in the preview window. Then, once you know which direction it will go, set the correct offset and delete the dotted line.
What is a kerf and an offset? When I cut 3mm tabbed boxes with my 10w laser using 2.8mm Baltic Birch, the tabs fit the slots perfectly. 
and an important point is there may be consequences to how you do it.
For example, we often separate inner cuts off in one layer just so they go first, then follow with the outer cuts.
That would reverse the kerf direction for the inner cuts, since, on the layer they’re on, they are now the outer, not inner.
This is another way to handle it. You probably don’t need the kerf offset on the outer cut. Assign it to a different layer without the offset to cut after the inner cuts.
That is also accomplished via the optimization settings without needing to separate via layering (to cut inside shapes first). I am still not understanding why the software isn’t simply doing what it says it does. The online documentation illustrates that a positive offset adjusts the beam to be offset by the kerf offset amount (the beam diameter) to the outside on an external cut and to the inside on an inner cut without needing to go thru the additional steps of layering. I must be missing something here but I am merely going by what the software says it does.