When I try to create a punch, I'm only given the option to select a group for the punch tool. Should I be able to select another Pro/E part? If so, am I missing a config.pro setting or some other setting? Any help would be appreciated.
A notch and/or punch is a special User Defined Feature in sheetmetal that only consists of one feature (a cut). (If it has more than one feature, then it is a regular UDF placed from the Insert > User Defined Feature command.)
You must create the UDF first in either the same part or some other part using the Tools > UDF Library > Create command, and store it in your standard UDF library (or the working directory). Then you will be able to insert it into your sheetmetal part using the Notch / Punch command.