Since you don't seem to be up on wiring or bike electrics and considering the cost of wires, crimping tools and connectors, you would be way ahead to buy a new harness:
www.z1enterprises.com/detail.aspx?ID=2626
They also provide the sub-harnesses needed... instruments, tail lamps, headlight, etc.
OK... go to my website and under wg's Tech Stuff Index read the coil repowering tech article. You can tie the hot wire from the Dyna S into the output of the relay used to power your coils. The last issue you want to undertake is wiring a modern combo regulator/rectifier. This will require you not use the OEM rectifier. Keep in mind your Z1 has a ...patch panel... that the OEM harness plugs into so you won't use the green plug. You will connect the new reg/rec to the stator (either three yellow wires or a blue/pink/yellow). There will be two other wires on your new reg/rec. The black/yellow will connect to the black wire coming off your solenoid (it is a ground) or you can connect the black/yellow to any frame ground. The larger gauge wire coming off your new reg/rec will go to a one to two connector where one leg off the connector will go to the POS terminal on the solenoid (essentially the hot terminal on your battery) and the other leg to the main fuse box where it goes through your main fuse and then in a big thick white wire to your ignition switch. Since you will not be given a new fuse box with the harness I think, I would consider swapping the OEM style fuse box for a more modern blade style fuse holder you can pick up at any autoparts store.
If you do what I suggest, you will still need a bit of guideance but it ain't all that big a deal and is far easier than rewiring from scratch.
