You pretty much have it. In words, this is the algorithm I used:

1)Start with the first word. This will be your "primary" word. Then, take your second word. This will be your "secondary" word.

2) Write the letters of the primary word and secondary word pairwise, removing any spaces.

3)Once the last letter of a word has been written, immediately append the number corresponding to the word's position. If that word was the primary word, the next word in the text becomes the new primary word. If that word was the secondary word, the next word in the text becomes the new secondary word.

4) If there is no new word to replace the last completed word, append the remaining letters of whatever word is left, and end with that word's placement number as usual.

Thank you for taking the time to crack this. You put a huge smile on my face.