I'm confused by this game's financial model.

I started a league with a $100M salary cap and was immediately $30M in the hole as the Detroit Lions. I realized it was probably because I should have adjusted the cap before starting, but I decided to see what I could do. So I released some players with a total salary of about 20M. My cap didn't change.

If I release players is it all counting as dead money?

I've already noticed that there are no signing bonuses, which takes out a lot of cap wizardry that teams do to spread big contracts over lots of seasons.

There is a setting that will assign a percentage of contracts to be "guaranteed" and show up in your Cut Salaries.

Where is that setting?

And should my cap space go up when I release a player?

Yes, cap space should go up. The setting is in the options menu underneath financial settings.