Visiting the old options screen (1) is not required, you can do it all form empire policy. When it comes to this, that is. In other cases the old option screen is handy, or required.
1: Turn automated design on (by either screen).
2: Disable the ones you want for yourselves by unchecking them in the empire policies (2).
The AI will automatically create its designs for the the automated ship classes. They are created as specified in the design files (but could be shrunk to fit size).
If you want to have a single design automated, you have to enable AI designer (either screen), and uncheck all but one ship class in Empire Policy.
Design screen settings are confusing to me, I keep forgetting the details... One of them (retrofit?) says whether the design is automatically retrofitted, if for instance in a fleet told to retrofit at fleet level. It says that "there is no upgrade path for this ship". The other one is probably about automatically obsoleting the design, but I am not sure... If you find an alien ship, the design will have the necessary settings to preserve them as is.
For a ship to retrofit, it will have to be given the "retrofit" order. The AI never touches a "manual" ship, except that they may automatically refuel if they are about to run out. If automated, the AI may retrofit it sooner or later if there is an updated design.
Understand that when the AI retrofits, or if you just give a general "Retrofit order", the latest, non-obsolete design of the class is chosen. So if you have manual alternatives to active AI designs (auto designed), you tend to lose due to AI designer being quicker about updating designs. And those that have the retrofit setting turned off in the design, will probably not retrofit in this case.
From the ship list, you can pick what design to retrofit to, if you only have ships of one class selected.