A switch in a mains circuit should always be in the live wire. If it is wrongly placed in the neutral wire, then with the switch open the appliance is still connected to the live wire. The appliance stays at about 230 V, so touching a faulty part inside it can give an electric shock.
The danger comes from any connection between the live wire and earth. Your body is at about 0 V and the live wire is at about 230 V. If you touch the live wire, you provide a connection to earth, so a current flows through your body. A current like this can cause serious injury or death.
A connection between live and earth has very low resistance, so a very large current flows. If a fault makes the live wire touch a metal case, the earth wire gives the current an easy path, the large current melts the fuse, and the supply is disconnected so the case is no longer live.
Insulation protects the user. The plastic coating on wires, and the plastic casing of a double-insulated device, stop contact with the live wire.
