Wiring up a Knitter-Switch rotary encoder
As per documentation, connections would be following:

A — A line of encoder, use pull-up with controller input pin.
B — B line of encoder, use pull-up with controller input pin.
C — GND of encoder part  

5 — VCC for LEDs and pushbutton
3 — pushbutton - one could use 10k pulldown since it seems it is switched to VCC  

1, 2, 4 — LEDs  

The LEDs have an "always present" VCC on pin 5 - so you would light them up by pulling their respective pin to GND with appropriate series resistor (470R - 1k2).