This diagram shows a three wire - rigged as a two......
Output is regulated at 1.0 volt above what the "sensor" wire delivers back to the regulator. So when rigged like this to operate like a "one wire" the cable running back to the battery connection has to have as low a voltage drop as possible. I've used a No.6 welding cable to build mine - voltage drop is tiny, so it keeps the output level high(er). Its attached where the battery cable ties to the starter solenoid.
The dash light wire has a positive voltage (out) on it so long as the alternator unit is functioning properly - if it fails, the alternator end switches to a ground. On the dash end the light is being fed a positve voltage as well by the dash lighting - as long as the system functions properly. Feeding both leads to the indicator lamp a positve voltage - cancels out and the light stays off. As soon as there is a problem and the alternator ceases to charge - the sensor lead becomes a ground - and the light comes on. The diode prevents the sensor from providing a "backfeed" voltage to the dash - and through there to the ignition(!) and creating a "run-on" situation with the key off.
Steve Metzger Tucson, Arizona