YES!! I have been playing around with electronics for 55 years, and these cnc4pc boards are quite something - in fact all things to all men.
Basically you do not require all this, but since you have one, here we go.
The way I read the script on the wiring is:
Yes - you need the connection to the computer. I don't know why you need the 5 volts, but it says you do. You might as well use the USB lead since it is provided.
You would also appear to need another 5 volt power suppy to the right hand side of the board - see 5 volts at 2 amps. I assume this is to power the board, and also provide voltage for the various switches that you may fit.
The 12 volt supply would appear to be for the spindle control system. Many of the spindle control systems require a voltage between 0 - 10v to indicate the speed at which they are to run. My digispeed takes its power from the Omron inverter, so I don't need a seperate supply, but it seems that this board requires a seperate 12 volt supply, and also a common 0v connection from your spindle drive electronics.
When connecting seperate pieces of electronics together - and here you are trying to connect a computer, to a breakout board, to a drive system and a spindle control, then all the parts need a common reference point (or voltage). This is usually 0volts.
However - where opto isolation is involved, there is no electrical connection. The power from your USB connection powers the input side of the opto electronics - which comes from your computer. The 5 volt supply powers the detector circuits of the opto isolation device, and powers the on board systems. The 12 volt input seems to power the conversion electronics from a 5 volt pwm signal (which Mach puts out) to a 0 - 10volt signal which the spindle control requires.
There are many cheap little power supplies available from Maplin (in UK) but I assume electronics shops elsewhere have similar items. You can use one of these with a 5 volt regulator chip which are available very cheaply. This would power the 5 volt.
If you spindle control system gives off the 12 volt supply, then use that to power the 12 volt side of the system, since it is going to control the spindle anyway. (You will still need the common connection as well)
Not much else to say really. The Xylotex box would have taken direct pin outs from the computer, without the Bob, providing you configured the plug correctly. I assume, therefore you attach a cable from the computer to the Bob and then from the Bob to the Xylotex. I assume you still have to configure Mach 3 to provide the output on the correct pins, provided the 25 pin connections are straight through.