Submodels and callouts?

[Jaco van der Molen]

However, I still cannot figure out how to add the submodel to the model and incorporate it in with a step.

I think your model file is not right. You will need to create a submodel in the file (with the editor, not LPub). You can add steps to the submodel too, just like it would be a normal model.
Then, use that submodel like it was a part and place it in your model. When LPub reaches this line to process, it will create a new page with the first step of the submodel (probably with a light yellowish background). Right-click on a blank part of the page and choose "Convert to callout".
That should do it.

If you want help setting up the file, post your LDraw file (mpd) here.