The system works by making and breaking a ground circuit .
So start by clipping a meter probe to the coil wire and rotate the engine by hand,
You should see the meter swing through from 0 Ω to ∞ Ω then back to 0 Ω .
If not then one of the wires has a constant ground on it or the insulating washers on the points are bridged .
The 3rd wire should be the low oil cut off and go the switch inside the crankcase.
That wire should be open to ground if the oil level is above the add line on the dipstick.