Design on ALU in multisim
The two select lines S0 and S1 will simply tell the two multiplexers which input to connect to the output. Observe that every function(Addition, AND, OR, and XOR) is connected to one of the four multiplexer inputs. Your ALU will always execute all four operations, but the setting of the select lines will actually decide which result the ALU will output.

Also, it seems there is a small error in your ModelSim design: the output signal of the OR1 gate is supposed to connect to D2 input of MUX1, but you have drawn them over the D0 and D1 inputs too; this could be a short circuit, make sure the OR1 output is only connected to the D2 input.