If your DotNetNuke install is on the same box as IIS/SQL2012/VS2012 then you just select "SQL Server 2005/2008 (Express) File".
You need to make sure other SQL instances, except SQL 2012, are NOT running on your machine when you do this....
DotNetNuke ships with a database.mdf file which is used by default by SQLExpress.
To recap..
Do not edit your SQL connection strings in your web.config
Stop any other SQL instance but SQL2012
Select the radio button beside "SQL Server 2005/2008 (Express) File".
I have noticed that SQL2012 uses a different account to run under so you may need to go in and change to "Network Service" so you can cleanly connect to SQL20102
Good luck...