DALI Click Board: Not clear about the board operation, usage and circuit design
Zone 1 of this circuit diagram is a linear voltage regulator. It is used to provide a stabilised supply to the rest of the circuit from the incoming DALI signal. The diodes are necessary so that you can use a large capacitor on the d.c. supply without affecting the DALI signal.

Zone 2 of this circuit diagram is the DALI transmit circuit. After opto isolation, it uses a FET which is rated to sink the full DALI power supply current so that the line can be pulled low, this is how DALI works. The pulses are produced by not pulling the line low so that it goes high due to the power supply. The capacitors should limit the rise/fall rates to meet the specification.

The green zone of this circuit diagram is for constant current in the opto LED of the receiver over the range of voltages that are allowed for a "high". It is not a current supply to the DALI bus.

The PHY_SEL pin is just a button with a pull up so that the micro can use this for the "physical selection" method documented in the Ed 1 version of the standards (see commands 269, 270, 267) but has been obsoleted in Ed 2.

It looks like your pin selection is correct, but I don't see in your schematic where the DALI bus power is coming from. You always need a (nominally 16V) current limited (8-250mA) DALI bus power supply which transmitters modulate to produce the signal by pulling it down.