Encoder ----> Shield
Red Positive terminal of Channel A
Black Negative Terminal of Channel A
Green Gnd pin on Arduino (or breadboard)
Blue 5V pin on Arduino (or on breadboard)
Yellow No Idea
White No Idea
I don't know where to connect the "Encoder A output" and "Encoder B output" on the Arduino.
I'm thinking maybe the PWM, but there's only one for Channel A (pin 3)
Or can I use Digital Pins 5 and 6?
Encoder outputs should go to interrupt pins, they will change rapidly and are best handled by
an ISR (there are many many examples out there). Which Arduino do you have?
The yellow and white wires are the A and B encoder outputs, respectively, as described on the Pololu product page you linked. They can be connected to interrupt pins or input pins, with varying degrees of performance.
Any of the quadrature encoder libraries should work, but this one is good.