Andrew, the photo, fig 35 on page 25 has no connection with the 3 diagrams in fig 36, page 26 other than to indicate what each part is according to the numbers in brackets below the photo fig 35 at the bottom of page 25.
The first diagram 1. on fig 36, page 26 is a simple gear train and should be read in connection with the screw cutting set up charts, figs 37 and 38 on page 27.
basically 1 in fig 36 shows 2 as the driver, 7 as an idler, 1 is simply a spacer gear to fill the empty space on the stud and 4 is the driven or leadscrew gear. If you read the diagrams 2 and 3 in fig 36 in conjunction with the charts it's all pretty self explanatory. The numbers 1,2 and 3 in the diagram boxes refer to the end column marked "set up". The circled numbers show the relative gears and positions taken up on the studs to provide simple or compound reduction train set ups, hence the side views of the banjo indicating with dotted lines the gears 'behind' gears. You'll notice that certain trains require the leadscrew gear to be on the inboard or outboard end of the leadscrew depending on the train type requirements. Simply move the spacer from one side of the leadscrew gear to the other.