$D_W$ is $3 \times 3$ (one row/column per worker) with 2s on the diagonal because each worker appears in exactly 2 observations (e.g. W1 in obs 1, 2). Off-diagonals are zero because no observation belongs to two workers. $D_F$ is $2 \times 2$ with 3s on the diagonal because each firm appears in 3 observations (F1 in obs 1, 3, 4; F2 in obs 2, 5, 6). The cross-tabulation block $C_{WY}$ is $3 \times 2$ (3 workers $\times$ 2 years); entry $[j,k]$ counts observations where worker $j$ is observed in year $k$. Here every worker appears once per year, so $C_{WY}$ is all ones.
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