a lot of those old bikes ran their incandescent lamps on AC. The two yellow wires are the AC outputs for the 7 AMP system. It was billed as a 7 Amp DC system however, because all four iterations of the 7 Amp system used a Regulator/Rectifier. If you were getting screwy voltages, chances are you were varying throttle, reading AC on a DC scale, or using an analog meter. To measure, the RPM needs to be steady, and it varies a lot by RPM from nearly zero at idle. So yes, our lamps are pretty dim until we get going. If you are going to change to a 3 volt system, you will need the flywheel and the magneto. I don't know which engine, or application you have, but it may be more of a pain in the ass than you want to deal with- as none of these parts are made any longer.
If you don't have it, download the
"Tecumseh Quick Reference" manual, as it contains some good information on charging systems.
Also, the manual you already downloaded shows tools in the back of the book. You need Tecumseh flywheel knock off tool part number 670103 to remove the flywheel without ruining your crank shaft nut. It's about $5 from Ebay and the like. (I assume you have a 7/16 flywheel threaded end)
Timing after replacing points is not straightforward. Rather than retype book procedures here, have a look at the Tecumseh manual Chapter 8 where it says "Ignition timing procedure." Essentially, you need a depth gauge or a dial indicator, and an ohm meter. If you run into troubles, several of us on here can help. Feel free to PM me if you need help. They can be a tedious thing to get right.
I use Synthetic oil in all of my engines, from 1964 Hodaka, several stock and modified flat heads, and my 67 Dodge 440. The reason I don't use alky fuel is that it eats rubber and aluminum, and it shows up real fast in Tecumseh carbs. Some of the other guys mentioned this in your other thread.
I hope this helps. As of late, there seems to be some hot tempers on here, and I'm a couple of weeks out of shoulder surgery and not real happy typing. Feel free to shoot me questions, as I am only one of several on here who have experience, or at least who can talk like they do. Dave