The Encounter tab allows you to select creatures that will be used in the Initiative tab.
The left pane of the window lists all of the races for the sources loaded in PCGen. You select the monsters that you wish to use in the upcoming encounter by double clicking on the monster's name or click on the Add (>) button located between the two panes. To remove double click on the monster listed in the right hand pane or click on the Remove (<) button located between the two panes.
Another option is to all GMGen to generate an encounter by clicking on the "New Encounter" button on the left of the window. If the "Environment" is set to "Generic", you can alter the EL (Encounter Level) and the Number of Creatures before clicking "New Encounter" and GMGen will randomly select an appropriate encounter. If the "Level 1 Dungeon" environment is selected, GMGen generates an encounter from a preset list.
As you add and remove monsters from the encounter, the "Total Encounter Level" shown at the bottom of the window will automatically change.
When you are happy with the contents of the right hand pane and wish to start the combat, click on the "Begin Combat" button. GMGen will then create blank character entities in PCGen. You can then alter the possessions levels, skills, feats, equipment etc. as normal in PCGen. If you wish to save the encounter for use later, in PCGen use File > Party > Save. The monsters will also automatically appear on the "Initiative" tab as enemies.