1) On the member directory page in admin mode click edit and set which member levels are to be included and which ones can use extended listing text
2) Each member in his profile (and when applying) specifies whether his record should be included - and what fields to show.
See also blog post
We have just launched the Member directory feature so expect it to become more polished and straightforward as we are getting more feedback. Thanks for being patient with us :-)
Dmitry Buterin, Chief Apricot