Hi vzwjimdroid,
The situation is that operations which expect some kind of contour input require that there are closed shapes, with an inside and an outside. A grid comprising several crossing lines won't result in closed shapes that PixelCNC can use. The most immediate way to arrive at a grid of squares with where you're already at is to use the Stroke Paths function to generate a raster-layer from your existing paths-layer grid. Then use the resulting raster-layer as contour input for your Medial-Axis Carving operation with a Contour Z that yields what you're looking for on there.
Otherwise, you can draw a square paths-layer, and duplicate/merge, moving each duplicate to become neighboring squares. Just make sure you include a small margin between neighboring squares, at least as large as your canvas resolution will allow for. i.e. if your canvas resolution is 512ppi then you'll want neighboring squares to be 2.0/512 inches apart, so the contour that results from them doesn't merge into one big one.
Hope that helps! Let me know if you have any other questions or need help with anything else :]
- Charlie