$F$ being represented by $X_0$ means that there is a natural isomorphism $\mu:h_C(X_0)\Rightarrow F$. In particular, $\mu\in Hom_{C^\wedge}(h_C(X_0),F)$; then the $s_0$ here is simply $\varphi(\mu)$.
The second sentence then basically says that for all $Y$, the function $$(h_C(X_0))(Y)=Hom_C(Y,X_0)\to F(Y):f\mapsto F(f)(s_0)$$ is a bijection$^1$; but this function is actually the definition of $\psi(s_0)_Y$, and thus it simply follows from the fact that $\psi(s_0)=\psi(\varphi(\mu))=\mu$, because $\varphi$ and $\psi$ are inverse bijections.
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$1$: I don't know if that's the source of your confusion, but there seems to be a mistake in the book: here the $f:X_0\to Y$ should really be $f:Y\to X_0$, otherwise it wouldn't make sense to compute $F(f)(s_0)$ since $F$ is assumed to be contravariant.