Quite simple really
Blue/Black wire is 12V feed from Fuse 4 (7.5A 'Tail/Turn/Park')
Among other things it feeds the Oil/Charging/Sidestand-warning lights.
When the engine isn't running the White/Red wire from Reg/Rec Pin 2 is at 0V so the charge light is lit due to 12V drop across it.
When the engine is running (Assuming all is well with the charging circuit) Pin 2 on the Reg/Reg comes up to 12V (the same as the Blue/Black wire), eliminating the voltage drop across the charge light bulb and it goes out.
If the Charging circuit can't supply 12V to Pin 2, for whatever reason, the light comes back on.
