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This was such a confusing thing, we eventually changed it to all take place on the Classes tab, it no longer involves the In-Play tab. Seems to have fixed most of the questions we used to get about it.
The favored class options only allow you to add a spell known that is 1 level below your maximum spell level, thus at 3rd Sorcerer level your highest spell level known is first. 1 less than that is 0th level. When you hit 4th level you'll be able to cast 2nd level spells, and you can start adding 1st level spells through the favored class option.
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