Solar time and clock time are going to be different. As you correctly surmised, if you set up your sundial to your current clock time, it would be one hour off from solar time because of the time offset. I'm not sure how you got two hours.
Is it a vertical or horizontal sundial? Probably horizontal... I did a google search and came up with lots of websites that answer the question in detail. But very simply, you probably need to align the sundial such that 12 is pointing North, 6 is pointing South... Hard to do during the day.
You can get a rough alignment by going outside during the day around mid-day. Assuming you do this while you are observing Daylight Savings...Say, your wristwatch says it is 1pm. Shift the sundial so that it shows that it is noon.
If you do this when DST is not in effect, then if your wristwatch says it is 1pm, have the sundial shadow also show it is 1pm.
Later on, when you shift to DST, it will be one hour off, but as you mentioned that is a human construct and does not reflect the solar time. (ie, the sundial does not get changed for DST like we change our wristwatches or other clocks.)
Other things/nuances that you'll run into: equation of time... but with a garden sundial, it's not like you will have accuracy to the minute anyways so I wouldn't worry about it...
Some of the websites (eHow) don't take into account DST.