you need to compress the whole lot with the star nut to get it to crimp together.
assemble it, headset, spacers, stem and all. and you SHOULD have about 6mm space above the topcap before the steerer tube starts (to allow for compression)
tighten it all up with the top cap (this is with the stem LOOSE)
tighten it so the headset becomes "a bit tight/stiff" then undo it 1/4 turn.
nip up the stem.
it SHOULD feel about right, and with the front brake on, the headset shouldnt rattle.
once youve got it set up ok, undo the top cap to take the tension off it, and then do it back up again tight enough so it doesnt rattle or come loose, it shouldnt be under tension really once the stems done up.