How do you make this work?

Ctrl-A but theres no indication on the screen that is either on or off>
I think the ship does not start with this option on since none of the shots are aiming at the enemy ships.

No, there is no explicit indication. With the auto-aim on, your guns just shoot at the enemies current position without leading. So if they're jinking away then you probably won't hit them. The energy drain is also much higher.

I find it very useful for doing head-on attacks while jinking, where no leading is required.