Ok, so I shared your exact pain. A lot. With several kits. And I know a fair amount about electronics.

To echo McCreed - ignore the colors. These are ancient electronics basically, and you're probably like me, accustomed to more modern diagrams etc.

The pickups (aka PUPS) will have a coax pair - the skinny internal wire, whatever color it is, surrounded by a braided wrap. MOST OF THE TIME. The braid part is ground (earth).

GROUND IS GROUND. All grounds must connect to the ground of the simple switch, which is in my experience, the body of the case of the switch. That also connects to the ground of the sleeve of the jack.

So what you end up with is skinny wire (inside the braid) of neck pickup going to the back of the two lugs soldered together, and skinny wire (inside the braid) of the bridge going to the front of the switch two lugs.

So the middle part is the "combined output" selected by neck or bridge, also grounded. It runs through the pots and cap, and then finally to the tip.

Exactly as depicted, but trust me - I know EXACTLY what you are asking. I built www.excitotron.com and I was still goin' Whaaa??? reading that - my guitar player friends with much less experience than I were "what's your problem?"