There are few articles available on the web which can cover this part in lot more detail and here are few of them.
https://technet.microsoft.com/en-us/library/jj679902.aspx
http://blogs.msdn.com/b/faceted_navigation_in_sharepoint_2013/archive/2012/11/23/10371130.aspx
http://sharepoint.stackexchange.com/questions/114797/issue-while-setting-faceted-search-in-sharepoint-2013
However the purpose of this post is to high light one situation when you are not able to select 'Use the refinement configuration defined in the Managed Navigation term set' option in refinement Panel. IT'S DISABLED
Your term store is correctly configuration using Use this Term Set for Faceted Navigation against term set and Faceted Navigation tab is having right values against terms, then there is just one step missing and that is to configure your site navigation to use Managed Navigation instead of structural.
Quite obvious when you read the option once again ;-)...
Hope this helps!
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