What do I do?

Calculate your BMR - that is the amount of calories you burn just by being alive. If you were in a coma, you would burn your BMR every 24 hours. This will probably be around the 1500 mark

http://www.bmi-calculator.net/bmr-calculator/

Then calculate your TDEE. This is the amount of calories you burn just going about your day to day stuff - walking around, going upstairs etc. For a sedentary person you can use the multiple of 1.2. So BMR x 1.2 is your TDEE. TDEE = Total Daily Energy Expenditure

http://www.fitnessfrog.com/calculators/tdee-calculator.html

If you consume 1200 calories and do no exercise, you will have a calorie deficit of your TDEE (1800 ish???) - 1200
500 ish?

500 a day = 3500 a week. That is about a pound a week loss

Now exercise.
To maintain your 3500 a week deficit, all you need to do is eat back your calories. Burn off an extra 500 a day and you can eat an extra 500 a day and still lose a pound a week

Eat back half and you will lose more etc etc

My tdee has worked out at 1,960.56

Great - just out of interest, what did you calculate this based upon? I did mine with no exercise, so any exercise I do is in addition to this.

http://www.myfitnesspal.com/topics/show/654536-in-place-of-a-road-map-2-0-revised-7-2-12

Great explination of BMR TDEE and how to use them properly - check it out.

^^^^ the best thing you do is go here