V1 is the Vdd for your microprocessor. It could be 3.3V or 5V...
V3 and V4 are just for simulation; they control when the simulated switches open/close. Think of "switch" and "fault" as being time-delay relays.
V3 opens the 120Vac switch S1 at 50ms in the simulation.
V4 opens switch S2 to create the simulated fault on the line at 100ms in the simulation.
With the circuit I showed, the microprocessor can tell if the ac is on/off. It can tell if the line is continuous to the relay or not. It cannot tell if the line is shorted; the ac breaker will blow in that case.
You are obviously confused by a simulation schematic and how to convert that to a circuit schematic. C1, R4, R5 are not "real" components; they represent the line resistance and capacitance. Just like R6 and L2 represent the relay.