The blue line is the input to the modulator and the green line is the output from the demodulator. The switch is the connection between the modulator and demodulator. The 10pF capacitor at the end of the RC network should actually be 100uF. In reality, the input signal would be amplified to clipping so that it always stayed at constant amplitude and then it would be filtered before being demodulated. That way, the receiver wouldn’t mistake difference in input amplitude for difference in frequency because the input wouldn’t change in amplitude.
