Outputs from each channel are fed to the two inputs of ICl connected as a differential amplifier. IC2 and 3 are driven by the output of ICl. Output of ICl is connected to the noninverting inputs of IC2 and 3. If the output of ICl approaches the supply rail, the outputs of ICs 2 and 3 will also go high, illuminating LED3. This would happen if the right channel were dominating
If the left channel was dominant, the outputs of ICs 2 and 3 would be low, illuminating LED1. If the two channels are equal in amplitude, the outputs of ICs 2 and 3 would be high and low respectively, lighting up LED2.