Some people are interested in getting something wired up not necessary correctly, but getting it to the point where it mostly works and doesn't seem to catch on fire, and they are satisfied. It's a matter of attention to detail. With the original alternator wires zip tied and out of the way, the regulator is mostly disconnected and not doing much. It may be contributing to the generator warning light somewhat working.
The #2 terminal is OK to connect directly to the batt terminal of the alternator, it is how the alternator senses how much voltage is on the battery wire so it knows how much to output. That wire would normally be connected to the battery wire at some distance from the alternator, such as the point at which the wire connects into the main harness by the driver side headlight. If it is connected remotely, it gives the alternator a better idea of what is going on with the voltage in the harness so it can better regulate output. The #1 terminal is connected to a resistor wire in the cab or to a diode, and provides a way to turn the alternator on or off. It is called the exciter wire. If you have a warning light instrument cluster, this wire also (normally) runs the generator warning light.
Here's a thread that describes the setup with the diode, and also shows the wiring with the generator warning light, and talks about where on the harness the sense wire is best connected.
http://67-72chevytrucks.com/vboard/s...d.php?t=604881