When the PMDX-126's EStop input is active (i.e. NOT grounded), the PMDX-126 will disable** all of its outputs, including signals to the PMDX-107 (which will tell the 107 to stop the spindle). It will also drive the parallel port #1 pin 10 signal high. As long as you have Mach3 configured to map its EStop input signal to port 1 pin 10 with a red "X" in the "Low Active" column and a green check mark in the "enable" column, then yes, the PMDX-126 will tell mach3 that the EStop switch was pressed.
One way to verify that the PMDX-126 is seeing your EStop switch is to look at the "EStop" LED. This is located right next to the "E" in the "E-Stop" silkscreen on the PMDX-126. The LED will turn on (and is red) when the EStop is active (i.e. switch pressed and the EStop input on the PMDX-126 not grounded). The LED will turn off when the EStop switch is not active (i.e. switch not pressed and the EStop input on the PMDX-126 *is* grounded).
** "disable" means drive all of its outputs low (near zero volts), and de-energize both of the PMDX-126's relays. Inputs to the PMDX-126 will still function normally.
Bob