Hello @Poley ,
The steps you've made are fine. I've measured on my board for the SW3. When the button is not pressed, the PT60 is 0V, when the SW3 is pressed, the PT60 is 5V.
The MCU seems to work on your side because you can connect to the FreeMaster. This is strange, can you please send me the .mot file generated to test it on my board?
For the last question, I am not sure I understand it. FreeMaster only read/write memory variables/regions. When you use FreeMaster to bring that value on your computer, basically it reads the value and sends it over UART to the Desktop application. The data store memory used, makes the process easier because it writes the button state to a volatile variable that is easier to find in the FreeMaster. MCU should read the button state and sent it to the LED even if you are using or not the FreeMaster.
Marius