Start a new document in InDesign and set the page size for the size of the book you are creating.
Enter .125 inches (.3175 cm) in the four bleed boxes and click OK. You may have to click the More Options button to see the BleedandSlug boxes.
Create your book adding graphics and text where needed. Any artwork that needs to be full bleed needs to extend to the red line. The page will be trimmed at the black line. The purple line is the margin you set for your book.
Once your book is ready, go to File > Adobe PDF Presets, and select Lulu' Adobe Job Options attached below.
In the Marks and Bleeds section, select Use Document Bleed Settings. Click Export.
Please Note: In a finished full-bleed PDF from InDesign, the graphics on adjacent gutter edges (odd pages on right, even on the left) should slightly overlap. This allows your graphics to line up as intended when the bleeds are trimmed during printing.
Here is an example of the type of overlap you can expect to see in a correctly formatted gutter in a full-bleed PDF: