How does the short circuit form? What is its effect?

Explanation

If a bare live wire (phase wire ) and a bare neutral wire touch each other (come in direct contact) or come very close to each other, the resistance of the circuit becomes very small and hence huge (very high) electric current flows through it. This condition is called a short circuit or short circuiting.
In this case, a large amount of heat is produced and the temperature of the components involved becomes very high. Hence, the circuit catches fire.