Ah, well, um.
The 'manual' has not been written yet. This thread is probably IT.
Yes, you have to use feedback from an encoder on your spindle motor.
Basically, you need the LATEST driver, an adequate encoder on the spindle motor, an input pin for what will be called the MPG A signal, while keeping the Index pulse as well. The MPG A signal is used because Mach3 can be configured to use it without any hassles.
My encoder has 512 lines: 16*32. A 256 line encoder might do. Got some doubts about going very far down from that. Well, a 100 line encoder (10*10) would work, just not as well. Better than nothing of course!
Cheers