VRRP flows on the LAN ports.
In this image, that you refer to yourself, MX1 has lost connectivity to the downstream network. It's LAN ports are not connected to anything. Hence MX2 will miss the VRRP advertisements from MX1, and thus MX2 will become Active. However, since MX1 is still "up", it will continue to act as active, and therefore you end up in the Dual Active scenario.
They don't see the VRRP advertisements, so they have no idea of the state of one or another.
However, for downstream clients, the above scenario, won't influence operations that much. MX2 is now active, and will hand out DHCP etc, but MX1 will not do anything, since its downstream link is missing - it's simply not connected to anything further down the LAN. So while both MX'es are active, and in theory will hand out DHCP, you're really only connecting to MX2.
If you have configured a Virtual IP for Warm Spare, I might expect some internet-sourced traffic being dropped, but if not, all internet-bound traffic should just exit MX2, and return to same way.
VRRP advertisements flow on all configured vlans on the MX. So you must not prune vlans between MX1 and MX2. Otherwise, you'll have some unexpected behaviour, and might end up in Dual Active as well eventhough both MXes have connectivity to eachother.
Best practice deployment for Meraki Warm Spare, is besides the topology shown in the screengrab above, also have two connections, one going from MX1 to SW1 and the other to SW2.
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