How is this device getting low voltage?
The AC/DC convertor is a rather crude circuit with dropper resistors, rectifier diodes and a Zener shunt regulator. After this there should be a regulator IC which supplies the MCU with a more stable voltage. 

Due to the high voltage drop it will only be capable of supplying a very low average current, but the large filter capacitor may hold enough charge to pulse a latching relay on and off.

Your images are too fuzzy to trace reliably, however I think the circuit may look something like this:-







simulate this circuit &ndash; Schematic created using CircuitLab

Note that the 'ground' symbol in this diagram is just to satisfy the simulator. In reality the entire circuit should be considered live!