The ground wire is sort of the return wire for the signals. I am oversimplifying and probably slightly misleading, but what happens is that the micro switch connects the two wires when you press the button, the encoder senses that the wire for "button x" has been grounded and acts accordingly. You could play your games by just touching the wire for the button you want to press to the ground terminal on the encoder instead of all this messy button stuff, but that would be a little unwieldy. Somebody may chime in with a little more technical answer, but while I understand what it all does, I don't necessarily get how it all does it. The reason that you daisy chain is that it is a lot less work than running a ground wire all the way to each switch.