I think that circut is for taking an RGBHV where the Horizontal and Vertical sync signals are seperate, and merging them to create a signal that the Guncon can understand to get the sync data for it's timing purposes.
I think however that this is only necessary for RGBHV output, I know the Guncon2 works with composite and YPbPr component video, where it gets it's sync data from the green luma line.
I've been meaning to test that Guncon's support of RGsB (RGB, Sync On Green). I know that the PS2 can natively output RGsB over it's component cables and sinc both H and V sync information are going down the green line. I have a pair of Dell Trinitron P1110 monitors that support RGsB so I could test it out if I get a component RCA/phono to D-sub 15 cable to connect it. No signal conversoin necessary. I just havn't been in a hurry to buy a $30 cable so I can play 480i interlaced Time Crisis 3 on a 21" CRT computer monitor.