The gauge is a wear gauge. There's a pointer on it which indicates how much beef is left on your linings. If you push down on the brake pedal and the pointer is near the end of the scale it's time for new shoes.
If that's not the case then most likely your brake engagement cam shaft has become corroded inside the backing plate and needs to come out.
In any case you'll need to remove the rear wheel to get to the backing plate. Remove the brake arm and pull the shaft that passes through the backing plate out from the inside of the backing plate. It may take a bit of lubrication and patience. There's an o-ring on the shaft which can tear if you force it out.
Clean the bore in the backing plate, as well as the shaft. It's probably coated with some pretty stubborn, hardened black stuff. Put some grease on the shaft and o-ring then smear it with your fingers until it's only a barely visible coating. Same with the flats on the cam. Re-insert the pin and make sure it rotates easily in any direction, then if your brake shoes themselves are still good and your brake springs are still intact, reassemble everything, adjust your brakes and yer back in buisiness.