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There should not be any need to set up records in the DO DNS tool but I am confused.
You would need to create an A record, not a CNAME in order to point the subdomain you wish to use to your droplet’s IP address. A CNAME record can point an a subdomain to another existing named service but it cannot be used to point to a bare IP address.
subdomain.example.org. IN A 127.0.0.1
A record like this (using your subdomain and your droplet’s IP addres) should do the trick.