As Mitch said, you need to have the push rod out, then slip the felt in the space between the backing plate and bottom of the axle. It doesn't go inside the kingpin, even though I read it described that way once.
I put the felt on the backing plate then push the rod just through just enough to hold in place, grease the felt first. Then I tip the pack plate, bottom first, in to place and shove the rod home. Bolt the backing plate to spindle.
I recall reading it that way also. Although I didn't heed this installation method it was described as being fitted inside the kingpin to stop any debri from going up into the kingpin. I want to say it was the red book that described it this way.