How does a Rotary Encoder work without connecting it to 5V

Like in this picture:

I know we can hook 5v later externally to debounce but still, i heard it works without debounce circuit even if its bouncy. But how can it send signals if there are only output and gnd pins?

Answer

They're just mechanical contacts.

^{simulate this circuit – Schematic created using CircuitLab}

Figure 1. Encoder wired to micro-controller with internal pull-ups.

The encoder is probably wired as shown (but I don't know why there are five wires on your diagram). What you can't see is that the internal pull-up resistors in the Arduino have to be enabled for this to work.