Black arrow = Neck
White arrow = Bridge
It works differently than a strat 5-way, and in simple terms, because of the way the switch is jumpered (your green line) it makes the lugs work relative to the pickup location. Hope that makes sense...
In regard to your earlier post (sorry, I thought I commented before) I believe the only way you would successfully get nitro over BLO, would be to apply enough shellac over it to seal it. Just be aware that shellac will have some amber tint to it as well, so you'll want to consider how that will work with a tinted nitro over it.
I have very limited experience using BLO as I have seen too many problems with it when used by others and have no interest in it. I like satin poly for my necks, and have just stayed with it (I moved away from lacquer FWTW).