knitting

I'm making the Knitty Klein Bottle Hat, but the following instructions puzzle me:

Round 1: [K1, p1, m1, place marker, k1, p1, m1] 3 times. 18 sts.

6 sections have been formed, 2 on each needle. Each marker indicates the end of one section; the end of each needle indicates the end of another section.

Round 2: Work in rib as set, working new sts in pattern.

Round 3: [Work in rib as set to end of section, m1] 6 times. 6 sts increased.

Repeat Rounds 2 and 3 six times more. 60 sts.

Do I:

1) knit the stitches as they appear (knit the knits and increases, purl the purls)

or

2) just do 1x1 rib regardless?

[Edit] Answered - thank you!