Replacing a few gears in my new to me 70 250 and the parts list has this note, 
replacement parts for 214-17131-10(3rd gear for DT1C) are275-17131-12 and 
308-17151-10
Is that the gear next to it that it engages? I have what I think is one but the center of the gear has cut outs like for oiling or something. No other gears have that cut out.

I wouldn't doubt the Yamaha engineers designed those gears for oiling, but the tabs are locking gears. 

What I believe happens is this:

When the gear you reference on the main axle, 3rd gear pinion, is moved by drum towards drive sprocket direction,
3rd gear wheel next to it on main axle is locked. At the same time, the 3r gear pinion on the drive axle is in the center position and is locked to the drive axle. 

Also, 3rd Gear Wheel (30T) on main shaft, 3rd Gear Pinion on drive shaft (23T), 1.30:1 ratio.  3rd Gear pinion on main axle that locks the wheel is 23T also but when locking 3rd is aligned with nothing on drive axle
I just changed that exact gear on my CT1.