Yes, each normally used standard looking joystick has 4 microswitches (does not matter if it is 8-way or 4-way). An "8-way joystick" simply indicates the joystick shaft can be moved into the corners which will result in two microswitches being pressed at the same time (ex: if you move the shaft to the top/left corner then the UP and LEFT microswitches will be both clicked).
So, with two 8-way and one 4-way joysticks you would have 12 microswitches (thus need 12 ports on the encoder), however, you could simply wire your 4-way joystick directly to one of your 8-way joysticks to save yourself from using 4 switches (thus reduce the amount of encoder ports you need to use to 8 ). Basically, if you are going to use your 4-way joystick in the same manner as your 8-way but you just do not want to let it go into the corners, then you should wire them together. If you plan to do separate things with your 8-way's and 4-way then you probably want to wire them separately.
As for the "Shazaam" thing ......
I THINK THIS IS HOW IT WORKS, ALTHOUGH LET SOMEONE ELSE CONFIRM THIS AS WELL!
I do not own a GGG encoder, but I believe this allows the user to mark one existing button (any button can be used?) to represent the "shift-key Shazamm button". As a result, I believe the user can then hold this special button down while pressing another button to indicate another mapping from your encoder.
For example:
Lets say you have 2 buttons (Player1Start and Player1CoinUp). I think you can do the mappings like this:
Player1Start = button to indicate Player1 started game (but also mark this as Shazaam button)
Player1CoinUp = button to indicate Player1 entered a coin
Player1CoinUp(when Shazaam button held down) = Pause a game
So when the Player1Start button is held down you can then press the Player1CoinUp button to have it pause the game.
In this example you can do 3 functions with only 2 buttons, thus you only need 2 encoder ports instead of 3.
I might be am most likely incorrect with the exact description a bit, but at least you can get the general idea of what a Shazaam key lets you do.