As mentioned, this is a LB circuit with a non standard dial attachment.
Wiring line as described makes the Capacitor working as a ringer capacitor, and lets the voice signal pass. It might have been better to solder it in to the Ringer, but this makes it working without changing the phone. Adding a Battery and you may use it as an LB phone. If any other phone are used on the line you may just lift off the receiver and join without using any line power. When you press the call button a DC path is established (green dotted line) using 1/2 of the ringer as a holding coil. This Holding coil may have to high resistance for some lines, but it seems to work here. The rotary might work, but again the high resistance holding coil might be a problem. Moving the wire from the dial according to the red markings may solve it. The voice signal follows the orange dotted lines just as if it was an LB line. The light blue dotted lines shows the battery circuit where the transmitter "generates" the sound signal.
Since the dial only uses the pulse contacts, loud clicking in the receiver will be heard during dialing.
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