There seem to be a couple of problems with the K2 Tools module in 2.3. On a fresh install this is what I have noticed -
1. When selecting a specific category it always reports zero results. This is due to a space being left out in the helper.php file. The line should be:

$query .= "AND catid={$catid} ";

The space seems to have been left out causing the order by clause to run in to this AND clause.

2. Selecting a parent category does no pull items from its children categories. Looking at the code this does not appear to be a bug but rather a function decision. I am working on a change to include the option but it appears to be a fairly complicated fix. Not only does the module need to be fixed, but it looks like the itemlist view will need adjusting as it only pulls items from the category ID passed to it by the module.