Gleichstrom-Lichtmaschine: 
Direct Current Generator

Zündschalter:  Ignition Switch

Regler:  Regulator

Akku(mulator):
Battery

Ladekontrolleuchte:
AMP/Charge Indicator

Rückstromschalter:
Cut-Out Contact
(Literally:  Reverse-Current Contact)

Feldwicklung: 
Field Winding

Bürste:  Brush

Generator: Field is typically housing, and output current flows through Brushes which by their location on Commutator achieves rectification to DC (mechanically). 

Alternator: Field is typically doing the rotating (supplied by slip rings), and output is taken from windings on the housing, and rectified by solid state diodes.

1.  What does the Regulator do?

The Regulator has two duties in a vehicle electrical system:
It keeps the system Voltage constant even with varying engine RPMs. 
It connects or disconnects Generator output from Vehicle power buss.   
With adequate RPMs, sufficient voltage is generated so that generator may be connected to power buss.  Generator supplies all Loads plus charges the Battery.
Is the Generator output voltage too low with low RPMs, it disconnects Generator from the vehicle buss so that Generator does not discharge Battery. 
To allow for a better understanding, both of these conditions will be handled separately.

Theory of Operation of Cut-Out Contact:

1.  Cut-Out Contact
2.  Current Coil
3.  Battery
4.  Generator
5.  Voltage Coil
 

See also:  Cut-Out Contact Notes

Once Cut-Out Contact is closed, current flowing through Current coil (2) increases the total magnetic force of generated by Voltage Coil (5) such that contact remains tightly closed.  

Kontakte:  Contact
Weicheisenkern:  (Soft) Iron core

Durchfluss der Spannungsspule:  Current of Voltage Coil

Contact is closed (magnetic field pulls contacts together), Generator voltage drops below Battery voltage (reverse current flows)

Notes:
 

Positive Feedback!  This provides Hysteresis!  See Reference 1. 

Since no difference is apparent between drawings 2 and 3, I believe they forgot to change drawing 3 to illustrate what is stated in text. 

Since direction of current in the Current coil is now in the opposite direction, the magnetic field which closes the contact is weakened, eventually to less than the Spring force, opening the contact and disconnecting Generator from the Power Buss.

If the Cut-out contact were to stay closed, current would flow from Battery to Generator, discharging Battery

Whoever opens their Regulator and doesn't recognize anything, an explanation of function follows.

To determine if the Voltage is sufficient, a clamp-on Amp meter (or Current probe, see Reference 2) can be used.  These are available from various commercial sources, suitable for AC or DC, and have the advantage that unlike a current measurement where circuit must be opened to insert a Shunt, such as permanent current measuring installations, a clamp-on current probe may simply be clamped around a conductor (while circuit is energized and current is flowing), and current can be read directly.  

In order to understand Voltage Regulation, it should be understood how current is generated in the Generator. 

Field Coils are incorporated in the Housing of Generator.  These are energized by the vehicle power buss, thus generating a magnetic field.  Rotating in this static magnetic field is an Armature, and in this manner, current flow is induced in the rotating Armature, and conducted away by the Brushes. 

The generated Voltage is determined by two factors:

- Armature rotational speed (RPMs).
- Magnitude of Field current.

The Voltage Regulator holds the system voltage constant by varying the Field Winding Current.   

A. Field Winding is connected to power buss.  Maximum current flows and maximum Generator output is generated. 
B. A resistance is switched into the Field current path, reducing current.  A reduced Generator output is generated. 
C. Field Winging is shorted (no current flows), such that theoretically, no output is generated by Generator.

Power bus voltage is held constant through rapid adjustment of these three control conditions.

There can be two types of Regulators.  One which controls the positive side of the Field, another which controls the negative side of the Field to chassis.  

This is a general statement of explanation.   Volvo's have a Negative controlling Regulator

As found in the Volvos!

Cut -Out Contact. 

Shown in Blue is the open connection between D+ of Generator and Vehicle Power Buss.  (Cut -Out Contact open).  Term 51 of Regulator is connected to Battery power.  Since Term 61 has lower Generator output voltage, Current flows from Term 51 to 61.  The AMP Indicator located between these two Terminals is therefore ON.

Regulator Contact.

Field Current circuit is shown in Red.  Contacts RK1 and RK2 are closed.  As such, DF is directly connected between Power Buss (by way of AMP Indicator) and Chassis.  Generator puts out maximum Voltage. 

Note:  The connection between Terminals 51 and 61 at Regulator is by way of the Ignition Switch.  From Term. 51, Battery Power is connected to Ignition Switch.  From Term 15/54 (Ignition, Brakelight, AMP Indicator) it continues on to AMP Indicator.  Other side of Indicator is directly connected to Term 61.

Added in Green to all subsequent drawings:

ZündSchalter (ZS): 
Ignition Switch
(Terminals 15/54 and 30/51)

ZündStromVerbraucher (ZSV):  Ignition power Loads

BatterieStromVerbraucher (BSV):  Battery Power Loads

Cut -Out Contact

As voltage produced by Generator rises with elevated RPMs, so does the magnetic field of the Voltage Coil, such that the Cut-Out contact closes (SK1 connected to SK2).  Shown in Blue is the closed connection between Gen D+ and Power Buss.  As current is flowing through the Current Coil, the magnetic field is increased, and the Cut-Out Contact is held closed at an reinforced level.  Term 51 and 61 have the same voltage, no current flows (AMP Indicator remains OFF).  Since Term 51 is connected to Generator output, all Loads are supplied by Generator, and the Battery also gets charged. 

Regulator Contact

Nothing has changed from previous condition, and contact remains closed.

Note:  It can be recognized now, that frame of the Regulator Contact is connected to Battery Positive, Voltage Regulator must therefore be isolated from vehicle frame (chassis).

Cut -Out Contact

Since Generator output continues to increase, the Cut-Out Contact continues to be tightly closed.

Regulator Contact

Generator output voltage increases due to the high RPMs to a high level.  This results in the magnetic field of the Voltage Coil attracting and moving the RK2 contact, such that the connection to RK1 opens (but is not connected to RK3 either).  The direct connection to Chassis is thereby interrupted but flows instead, at a reduced level, shown in Red, through the regulator Resistance (Wd, which is connected to Chassis). With this decreased Field Current, Generator output is reduced.

Cut -Out Contact

Since Generator output continues to be high, the Cut-Out Contact continues to be tightly closed.

Regulator Contact

Cut -Out Contact

Since Generator Output voltage is less than Battery voltage (reverse) current now flows into the Generator, shown in Blue.  Since the Magnetic field of the current coil also reverses, the total magnetic field is reduced, resulting at some point in the Cut-Out Contact opening. 

Note:  The AMP Indicator only goes ON, after the Cut-Out contact opens, since the Lamp of the Indicator is equivalent to a resistance.

Regulator Contact

For those that haven't had enough, here is an explanation of Combined Voltage Regulation.  During charging of the Battery, neither Voltage of Current may be too high.  The Voltage is held constant as explained above.  Determining the Charging Current takes a bit of Physics:
P (Power, in Watts) = Voltage x Current

If you are riding around with your MZ (a 6V motorcycle)  with Lights ON, you are consuming 60-70 Watts (Front Light 45W + Rear Light 5W + Ignition 10-20W). 
I = P / V   I=65 / 6  I = approx. 11Amps

It can be seen that Current is a factor of Loads in use (Radio, Subwoofer etc.).  Unfortunately, this is also the Charging Current which the Battery receives. 

Combined Voltage Regulation means that the combination of Voltage and Current Coils on one Iron Core results in regulating not only the Generator, but also the Current flowing through the Current coil has an influence.  A high current also increases the magnetic field of the Iron Core.  This means that with too high an output current, the Field is also reduced. 

Source:  (Drawings and parts of Text):  Fachkunde Kraftfahrzeugschlosser (1964; VEB Verlag Technik Berlin)