I am sure I explained this a couple of months back -- it should be in the archives...
I can't remember the colours (and don't have any of the appropriate schematics in front of me), but I can explain where the 3 switch contacts should be connected :
Common : Ground (this is electrically the -ve terminal of the battery pack)
Normally-closed : To one of the pins going to the printer PCB, and thence to one of the wires to the Out-Of-Paper-Switch (OOPS) contacts.
Normally-open : To one of the flag inputs on the ACT chip (22 pin DIL on the logic board). I think it's either pin 3 or pin 4.
Here's the explanation :
When the switch is not pressed, it grounds one of the OOPS contacts via its normally-closed contact. If there's no paper in the printer, the OOPS contacts are closed, this grounds the forward-drive line to the printer motor driver. If the machine tries to print anything, the motor can't run (because the forward-drive line is held to ground), so the head never moves from the home position. The CPU detects this, and gives an Error.
When the switch is pressed, the flag input to the ACT is grounded. This sets an internal flag, which is detected by the firmware. This then starts the printer motor to advance the paper. Because the normally-closed contact is then open, the OOPS contacts do nothing (one of them is electrically unconnected), so you can use the Advance button to feed paper into an empty printer.
There is one very minor bug (which cost me an hour of tracing a fault that wasn't there). If there is no paper in the printer, the brake circuit can't operate correctly when you release the Advance button. The head 'coasts' to a halt, it doesn't stop dead. This is not a real problem, unless you don't realise it and start trying to figure out why the brake doesn't work.