I think you will find that Charlie is correct and you will find the field wire is shorted between the regulator and alternator.
As for how the system works, the voltage regulation relay is normally closed to allow the current flowing through the light bulb and the external resistor to go to the Field terminal on the alternator. Internally in the alternator the F terminal is connected to one brush lead. The power goes through that brush, through the field coil in the rotor turning it into a magnet and out through the other brush to ground. When the alternator starts to charge there is a current supplied from the Relay terminal on the alternator which closes the field relay in the regulator. When that relay closes it provides full battery voltage to both terminal 3 and 4 on the regulator causing the light to go out. It also provides full battery voltage to the voltage relay which will switch from providing battery voltage to the alternator field to grounding the field when the voltage rises to to set level. That causes the alternator output voltage to drop which in turn causes the voltage relay to switch back to providing full battery voltage to the alternator field coil. As the voltage relay points vibrate between battery voltage and ground the voltage is controlled by varying the amount of time between the two positions. The result is that the alternator is switching between full output and no output. This is what messes up some digital meters when trying to check the voltage.
When you manually closed the field relay you caused full battery voltage to go through the voltage relay and out the field wire to the alternator. Since that wire has a short to ground the relay points were overloaded and became red hot. The closing of the field relay is also what turns off the charge indicator lamp by applying battery voltage to both sides of the bulb. Since the shorted wire has less resistance to ground the field coil in the rotor your manually closing the points could cause the alternator to begin to charge a little but the reason the light went out is because with that relay closed the bulb had battery voltage on both sides.
This post was edited by Owen Aaland at 13:48:58 02/15/15.
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