I do not understand everything, but im not going to blame you for that 
Im just happy that you take the time to share your experience 
You say the goal is to keep track of the position of the rotory encoder. I understand that it is the case if you for exemple will use the rotoryencoder to make a motor shaft turn or something.
But as i understand it, when it is used in a "button box" build. The only thing that happens when the button box is connected to the computer is that every time the rotory encoder is turn one step, the "game/joystick/computer" will registrer a "button being pressd". One "Button" for clockewise turns and one "button" for conturclockwise. So the computer basiclly thinks that the rotory encoder is 2 buttons. The exact location of the rotory encoder is not needed (in this project). As i understand it.
There is a video on youtube "how to build a button box" were he builds a button box (and ill post the code here). But he says @3:33 that the rotory encoders wont register correctly if they are turnd to fast. (Same goes for the button matrix, they need to be ghosted. but i havent lookt in to that fully yet.)
Most of the buttonbox builds dont seems to include the rotory encoder libery. Maby that can fix the fast turning issue?
Or maby that is because the exact location of the rotory encoder is not relevant?
Or maby something else
#include <Keypad.h>
#include <Joystick.h>
//DEFINITIONS
#define ENABLE_PULLUPS
#define NUMROTARIES ? //replace "?" with number of rotary encoders you are using
#define NUMBUTTONS ? //replace "?"with number of buttong you are using
#define NUMROWS ? //replace "?" with number of rows you have
#define NUMCOLS ? //replace "?" with number of columns you have
//BUTTON MATRIX
//first change number of rows and columns to match your button matrix,
//then replace all "?" with numbers (starting from 0)
byte buttons[NUMROWS][NUMCOLS] = {
{?,?,?,?},
{?,?,?,?},
{?,?,?,?},
{?,?,?,?}
};
struct rotariesdef {
byte pin1;
byte pin2;
int ccwchar;
int cwchar;
volatile unsigned char state;
};
//ROTARY ENCODERS
//each line controls a different rotary encoder
//the first two numbers refer to the pins the encoder is connected to
//the second two are the buttons each click of the encoder wil press
//do NOT exceed 31 for the final button number
rotariesdef rotaries[NUMROTARIES] {
{0,1,22,23,0}, //rotary 1
{2,3,24,25,0}, //rotary 2
{4,5,26,27,0}, //rotary 3
{6,7,28,29,0} //rotary 4
};
#define DIR_CCW 0x10
#define DIR_CW 0x20
#define R_START 0x0
#ifdef HALF_STEP
#define R_CCW_BEGIN 0x1
#define R_CW_BEGIN 0x2
#define R_START_M 0x3
#define R_CW_BEGIN_M 0x4
#define R_CCW_BEGIN_M 0x5
const unsigned char ttable[6][4] = {
// R_START (00)
{R_START_M, R_CW_BEGIN, R_CCW_BEGIN, R_START},
// R_CCW_BEGIN
{R_START_M | DIR_CCW, R_START, R_CCW_BEGIN, R_START},
// R_CW_BEGIN
{R_START_M | DIR_CW, R_CW_BEGIN, R_START, R_START},
// R_START_M (11)
{R_START_M, R_CCW_BEGIN_M, R_CW_BEGIN_M, R_START},
// R_CW_BEGIN_M
{R_START_M, R_START_M, R_CW_BEGIN_M, R_START | DIR_CW},
// R_CCW_BEGIN_M
{R_START_M, R_CCW_BEGIN_M, R_START_M, R_START | DIR_CCW},
};
#else
#define R_CW_FINAL 0x1
#define R_CW_BEGIN 0x2
#define R_CW_NEXT 0x3
#define R_CCW_BEGIN 0x4
#define R_CCW_FINAL 0x5
#define R_CCW_NEXT 0x6
const unsigned char ttable[7][4] = {
// R_START
{R_START, R_CW_BEGIN, R_CCW_BEGIN, R_START},
// R_CW_FINAL
{R_CW_NEXT, R_START, R_CW_FINAL, R_START | DIR_CW},
// R_CW_BEGIN
{R_CW_NEXT, R_CW_BEGIN, R_START, R_START},
// R_CW_NEXT
{R_CW_NEXT, R_CW_BEGIN, R_CW_FINAL, R_START},
// R_CCW_BEGIN
{R_CCW_NEXT, R_START, R_CCW_BEGIN, R_START},
// R_CCW_FINAL
{R_CCW_NEXT, R_CCW_FINAL, R_START, R_START | DIR_CCW},
// R_CCW_NEXT
{R_CCW_NEXT, R_CCW_FINAL, R_CCW_BEGIN, R_START},
};
#endif
//BUTTON MATRIX PART 2
byte rowPins[NUMROWS] = {?,?,?}; //change "?" to the pins the rows of your button matrix are connected to
byte colPins[NUMCOLS] = {?,?,?,?}; //change "?" to the pins the rows of your button matrix are connected to
Keypad buttbx = Keypad( makeKeymap(buttons), rowPins, colPins, NUMROWS, NUMCOLS);
//JOYSTICK SETTINGS
Joystick_ Joystick(JOYSTICK_DEFAULT_REPORT_ID,
JOYSTICK_TYPE_JOYSTICK,
32, //number of buttons
0, //number of hat switches
//Set as many axis to "true" as you have potentiometers for
false, // y axis
false, // x axis
false, // z axis
false, // rx axis
false, // ry axis
false, // rz axis
false, // rudder
false, // throttle
false, // accelerator
false, // brake
false); // steering wheel
const int numReadings = 20;
int readings[numReadings]; // the readings from the analog input
int index = 0; // the index of the current reading
int total = 0; // the running total
int currentOutputLevel = 0;
//POTENTIOMETERS PART 1
//add all the axis' which are enabled above
int zAxis_ = 0;
int RxAxis_ = 0;
//POTENTIOMETERS PART 2
//Which pins are your potentiometers connected to?
int potentiometerPin1 = ?; //Change "?" to the pin your potentiometer is connected to
int potentiometerPin2 = ?;
const bool initAutoSendState = true;
void setup() {
Joystick.begin();
rotary_init();
for (int thisReading = 0; thisReading < numReadings; thisReading++) {
readings[thisReading] = 0;
}
}
void loop() {
CheckAllEncoders();
CheckAllButtons();
CheckAllPotentiometers();
}
//POTENTIOMETERS PART 3
//change the details to match teh details above for each potentiometer you are using
void CheckAllPotentiometers(){
//potentiometer 1
currentOutputLevel = getAverageOutput(potentiometerPin1);
zAxis_ = map(currentOutputLevel,0,1023,0,255);
Joystick.setZAxis(zAxis_);
//potentiometer 2
currentOutputLevel = getAverageOutput(potentiometerPin2);
RxAxis_ = map(currentOutputLevel,0,1023,0,255);
Joystick.setRxAxis(RxAxis_);
}
int getAverageOutput(int pinToRead){
index = 0;
total = 0;
while (index < numReadings){
readings[index] = analogRead(pinToRead);
total = total + readings[index];
index = index + 1;
//delay (1);
}
return total / numReadings;
}
void CheckAllButtons(void) {
if (buttbx.getKeys())
{
for (int i=0; i<LIST_MAX; i++)
{
if ( buttbx.key[i].stateChanged )
{
switch (buttbx.key[i].kstate) {
case PRESSED:
case HOLD:
Joystick.setButton(buttbx.key[i].kchar, 1);
break;
case RELEASED:
case IDLE:
Joystick.setButton(buttbx.key[i].kchar, 0);
break;
}
}
}
}
}
void rotary_init() {
for (int i=0;i<NUMROTARIES;i++) {
pinMode(rotaries[i].pin1, INPUT);
pinMode(rotaries[i].pin2, INPUT);
#ifdef ENABLE_PULLUPS
digitalWrite(rotaries[i].pin1, HIGH);
digitalWrite(rotaries[i].pin2, HIGH);
#endif
}
}
unsigned char rotary_process(int _i) {
//Serial.print("Processing rotary: ");
//Serial.println(_i);
unsigned char pinstate = (digitalRead(rotaries[_i].pin2) << 1) | digitalRead(rotaries[_i].pin1);
rotaries[_i].state = ttable[rotaries[_i].state & 0xf][pinstate];
return (rotaries[_i].state & 0x30);
}
void CheckAllEncoders(void) {
Serial.println("Checking rotaries");
for (int i=0;i<NUMROTARIES;i++) {
unsigned char result = rotary_process(i);
if (result == DIR_CCW) {
Serial.print("Rotary ");
Serial.print(i);
Serial.println(" <<< Going CCW");
Joystick.setButton(rotaries[i].ccwchar, 1); delay(50); Joystick.setButton(rotaries[i].ccwchar, 0);
};
if (result == DIR_CW) {
Serial.print("Rotary ");
Serial.print(i);
Serial.println(" >>> Going CW");
Joystick.setButton(rotaries[i].cwchar, 1); delay(50); Joystick.setButton(rotaries[i].cwchar, 0);
};
}
Serial.println("Done checking");
}
