The circuit is shown in its normal (immobilised) state.
Current from the battery supply flows through both relay coils and the flashing led (which should have its own internal limiting resistor.)
This current is not enough to energise either relay.
The heavy-duty relay's open contacts are in series with a crucial part of the ignition system,(you decide where), so the vehicle can not be started.
To mobilise the vehicle you have to swipe a magnet past the reed switch. The switch needs to be hidden behind a plastic part of the dash or other plastic trim. The magnet can be on your key-chain or wherever takes your fancy.
The left-hand relay will now be energised. Its contacts will close, latching it on, and also energise the heavy-duty relay. The flashing led will be shorted out and therefore not lit. The ignition circuit will now be complete and the engine may be started.
To immobilise the vehicle just press the push button. Both relays will release. The ignition circuit open, and the led will flash.
The 1N4001 is to protect the reed switch from the higher coil current of the heavy-duty relay.