Normally both remote relays are waiting for power to be applied to the 2 wires going back to the Phone equipment room.

When power is present on the 2 wires, depending on the polarity, the designated relay will have coil voltage, and the relay contacts transfer.

The operating states are 1) No power on the wires, both relays de-energized.  2) power present on the 2 wires, only one relay has coil voltage determined by its series diode and the applied polarity on the wires.

The interconnection between the two schematics is Output 1 to 1 and Output 2 to 2. Now when Switch 1 is closed Relay 1 is energized.
When Switch 2 is closed, the DPDT relay is energized, the DPDT relay contacts move, and Relay 2 is then energized.

If both Switch 1 and Switch 2 are closed, Switch 2 will override Switch 1 every time.