The coordinate of the center of the sphere $S$ is given by $x=(x_1,x_2,x_3)$ and the radius of the sphere is $1$. This makes sense since the output of the function is of the form $(R\cos\psi+x_1,R\sin\psi+x_2,0)$, which implies that $x_1,x_2$ are the first two coordinates of the center of the sphere.
On the other hand, $y=(y_1,y_2,y_3)$ is the coordinate of a point on the sphere. The output of the function gives the coordinate of the "sterographic projection" of $y$ (the intersection of the line (which goes through $y$ and the north pole of the sphere) with the complex plane). When $x=(0,0,0),$ the function coincides with the one defined in Wikipedia.
One needs to be careful of the definition $\theta$ since in Mathematica, ArcTan[x,y] is different from the function $\arctan\frac{y}{x}$. For instance one has in Mathematica ArcTan[1,1]=$\frac{\pi}{4}$ and ArcTan[-1,-1]=$\frac{-3\pi}{4}$. This is why $\theta+\pi$ instead of $\theta$ is used in the output of the function. For the sake of a function, one could define $\theta$ as the angle of the vector $(y_1-x_1,y_2-x_2,0)$ with the $X_1$-axis and replace $\theta+\pi$ with $\theta$ in the output of the function.