Connect the BlueSmirf to the ID12 reader as follows:
Then connect the ID12 to the batteries:
If you use solder to create a durable connection it might be better to unplug the jumper cable before soldering. Also, the jumper cable's plastic cover melts really quick so take care not to heat it too long.
Once you got the connections ready, attach 3 1.5V AA batteries (equals 4.5V) and make shure the BlueSmirf starts to flash its red LED.
Note: While the BlueSmirf is marked as 3.3V it does work pretty well with 4.5V. The ID12 which is laid out for 5V also functions with 4.5V (maybe with a slightly lower range).
Put everything into the box and try to close it tightly without squeezing any cables. For the following test (next step) you might want to open the box again to be sure the BlueSmirf LED works as supposed.