The way I'm told to handle the connections on both the hook and the rotary is to hook one cable to ground and the other to a digital input. I'm told that ground is reference zero volts or something like that meaning that it'll be ether 0/1 to the digital input which I need to determine when I write the logic code.

Clever from the chat room pointed me to this schematic for how to hook up the Arduino. https://www.sparkfun.com/images/tutorials/Port-O-Rotary/PIC%20Layout.jpg